SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1999
Commission file number 2-93668-FW
UNIVIEW TECHNOLOGIES CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State of incorporation) (I.R.S. Employer
Identification No.)
10911 Petal Street, Dallas, Texas 75238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 503-8880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.10 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X NO
Indicate by check mark, if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
On August 31, 1999, the aggregate market value of the voting stock
held by non-affiliates of the Registrant (16,559,505 shares) was
approximately $21,527,357 based upon the average of the high and low
trading prices of the Common Stock as reported by the Nasdaq Stock Market
($1.30).
On August 31, 1999, there were 16,919,274 shares of Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Exhibits shown on Exhibit Index.
<PAGE>
GENERAL INDEX
Page Number
ITEM l. BUSINESS 3
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 9
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 18
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 19
ITEM 11. EXECUTIVE COMPENSATION 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 27
SIGNATURES 28
EXHIBIT INDEX 60
<PAGE>
UNIVIEW TECHNOLOGIES CORPORATION
PART I
ITEM l. BUSINESS
(a) General Development of Business
uniView Technologies Corporation and its subsidiaries (the
"Company") is engaged in the development, licensing and implementation of
innovative hardware and network technologies and solutions for niche set-
top box applications including home healthcare, education, banking,
medical, hotel, and home office, as well as providing system integration,
technical support and network consulting.
We were incorporated in Texas on July 13, 1984. We filed an S-18
registration statement in November 1984 and completed the registered
offering in January 1985. On November 8, 1993 our stock was first listed
on the Nasdaq Stock Market.
In November 1993, we acquired Curtis Mathes Corporation (CMC), maker
of consumer electronics products relating specifically to the home
entertainment industry, and in May 1994, we changed our name to Curtis
Mathes Holding Corporation to reflect our primary business activity at
that time. During fiscal 1996, CMC sold its entire remaining inventories
to a third party and negotiated a satisfaction of its primary debt
obligation with Deutsche Financial Services Corporation ("DFS"). CMC has
had no sales since that time.
In 1996 we began development of our proprietary Internet/television
"convergence" technology, called "uniViewr," designed to enhance the
capabilities of television. We introduced our first set-top box in 1997,
which incorporated the uniView technology and included its own "back
office" support and connectivity to its own Internet service, the uniView
Xpresswayr, which was developed concurrently with the set top box
technology.
In 1997 we began to offer consulting services in connection with our
revolutionary set top box and, today, we use convergence devices and
integration expertise to design custom broadband networks for clients in
multi-level marketing, hospitality, medical facilities, utilities,
banking, and telecommunications. In addition to complete network system
design and integration, we also offer Web site development, web site
hosting, and full international Internet access, as well as product
research and development and customer service. The transition from a
consumer electronics company to a technology consulting company has been
completed, and is exemplified by the Company's name change to "uniView
Technologies Corporation."
(b) Financial Information About Industry Segments
Please refer to Note Q of the Notes to Consolidated Financial
Statements in this Form 10-K for information concerning Industry
Segments.
<PAGE>
(c) Narrative Description of Business
Major Markets, Products and Services
Our primary focus is in offering the technical expertise of our
experienced and knowledgeable staff to customers wishing to increase
business productivity by maximizing the benefits of their information
technology (IT). We target various niche markets, including home
healthcare, education, banking, hotel, home office, and consumer
electronics, among others.
Consulting Services include identifying a customer's individual
needs and then either modifying an existing network system, or designing
and implementing a customized, cost-efficient, state-of-the-art
interactive broadband network that integrates one or more devices such as
personal computers, set-top boxes, and/or web phones. Administration and
networking offerings include systems design, systems configuration,
project management, UNIX administration, NT administration, Novell
administration, LAN and WAN design, and Internet connectivity.
Programming languages supported include PERL, C, C++, Java, and Visual
Basic. Database consulting is available for DBA, Programming Oracle, and
SQL Server.
ISP Services include the full-service uniView Xpressway which allows
the capability of providing web hosting, web development, and corporate
connectivity through ISDN or dial-up, as well as providing the
specialized Internet access and online services that enhance the advanced
features of the uniView set-top box.
The uniView technology is available for licensing by customers
wishing to manufacture and market a set-top box that provides a consumer
with easy and affordable access to the Internet through the television
medium. uniView set-top units seamlessly integrate Internet access, fax
and online information services with the traditional TV viewing
experience using broadcast quality translucent graphics. All uniView
units additionally have built-in e-mail, conference phone, on-screen
caller ID, automated VCR control and various interactive television
capabilities. Other unique features include the capability of
automatically monitoring the TV listings database and blocking any
programming that parents might find inappropriate based on their own
specifications of show, rating or specific content. The uniView units
are further designed to accept optional input peripherals, such as a
wireless keyboard, which can be added as an accessory to the basic
system. The uniView system is fully operational with its standard
infrared-style remote control; the infrared wireless keyboard allows
greater flexibility in "surfing" the Internet or sending e-mail by
providing a full keyboard.
The Curtis Mathes trademark is available for licensing by customers
wishing to market consumer electronics products.
<PAGE>
Patents, Trademarks and Licenses
We own or hold rights to all patents, trademarks and licenses that
we consider to be necessary in the conduct of our business, including the
registered "uniView" trademark, which is due for renewal in July 2003;
the registered "Curtis Mathes" name and logo, which is due for renewal in
April 2005; the registered "Lightning Bolts" logo which is due for
renewal in September 2008; and the registered "uniView Xpressway"
trademark which is due for renewal in May 2009.
Manufacturing
We have no plans to manufacture any product based upon our
technology. Licensees of our technology are expected to make their own
arrangements for manufacturing and may use various manufacturers located
in America and abroad to produce licensed products.
Environmental
We believe that we are presently in substantial compliance with all
existing applicable environmental laws and do not anticipate that such
compliance will have a material effect on our future capital
expenditures, earnings or competitive position.
Major Customers
We had no customers in 1999 accounting for more than 10% of our
consolidated revenues. We had one customer in 1999 accounting for 17% of
our trade accounts receivable, and two customers in 1998 accounting for
36% of our trade accounts receivable.
Competition
The industry in which we and our licensees operate is intensely and
increasingly competitive and includes a large number of technology
development and consulting companies, Internet service providers and
manufacturers of consumer electronics products. A number of companies
have announced development of, or have introduced Internet-television
convergence devices and technologies similar to our uniView technologies.
Such competitors include, among others: (i) suppliers of low-cost
Internet access technologies, such as "network computer" devices promoted
by Oracle and others, (ii) "set top" boxes developed by WebTV Networks,
Scientific Atlanta and others, as well as (iii) video game devices that
provide Internet access such as the Sega Saturn, the Sony Playstation and
the Nintendo 64. In addition, manufacturers of television sets have
announced plans to introduce Internet access and Web browsing
capabilities into their products or through set-top boxes, using
technologies supplied by others. Personal computer manufacturers, such
as Gateway 2000, are introducing products that offer full-fledged
television viewing, combined with Internet access. Operators of cable
television systems also plan to offer Internet access in conjunction with
cable service. We also compete with various national and local Internet
service providers, such as the Microsoft Network, AT&T Corp., MCI
Communications Corporation, Netcom and others, and commercial on-line
services such as America Online, Inc., ICTV and @Home Network, Road
Runner Group (owned by Time Warner Inc.). Competition occurs principally
in the areas of style, quality, functionality, service, design, product
features and price of the licensed product.
<PAGE>
Research and Development
We view our ability to offer new, improved, and innovative
interactive broadband technologies as an important component in our plan
for future growth. We intend to take advantage of licensing
opportunities, as well as pursue internal and external development of new
technology as may be necessary to meet customer demand and to achieve and
maintain a competitive position in the marketplace.
Employees
As of June 30, 1999, we employed 79 persons. We believe that our
employee relations are good.
Warranty
CMC continues to meet its warranty obligations through an outside
warranty service provider which specializes in warranty service and
repair for consumer electronics. By contracting these services to an
outside company, CMC has been able to more efficiently provide consistent
high quality warranty support, and we have been able to eliminate the
direct overhead associated with the warranty support function. Amounts
have been accrued to cover estimated product warranty costs. Many of the
warranties on products sold in the past are expiring, and due to lower
product sales in the past few years CMC's warranty obligations are slowly
diminishing. (See Note J of the Notes to Consolidated Financial
Statements for further warranty information.)
ITEM 2. PROPERTIES
At June 30, 1999 we continued to operate from the following
locations:
Location Purpose/Use Owned/Leased Square Footage
- -------- ----------- ------------ --------------
Dallas, TX Corporate Headquarters;
Advanced Systems Group
and Products Group
offices; warehouse Leased 74,882
Tulsa, OK Network America, Inc.
office Leased 8,400
Ponca City, OK Network America, Inc.
office Leased 900
Our locations are deemed to be suitable for all of our operations
and are reasonably well utilized. As we have moved away from consumer
electronics, our need for facilities related to receiving, storing and
distributing large quantities of consumer electronics products has
diminished. Consequently, the bulk of the warehouse space at our current
corporate headquarters location is under-utilized. The lease term for
this location expires in November 1999 and we are currently evaluating
other locations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In June 1998, we acquired 100 percent ownership of Video Management
Inc. ("VMI"), which owns 100 percent of Network America, Inc. ("NWA"), an
Oklahoma corporation, and CompuNet Support Systems, Inc. ("CNSS"), a
Texas corporation. VMI had previously acquired NWA and CNSS from
DataTell Solutions, Inc. ("DataTell") as a result of an agreement to
accept collateral in satisfaction of a debt owing by DataTell to VMI.
The stock of NWA and CNSS had been pledged to VMI by DataTell as
collateral in a series of note agreements with VMI. In May 1998 an
involuntary petition in bankruptcy was filed against DataTell under
Chapter 7 of the United States Bankruptcy Code. The relevance of this
proceeding is that if certain conditions are satisfied, the acquisition
of NWA and CNSS by VMI could be reviewed by the Court to determine
whether a preferential or a fraudulent transfer of those assets had
occurred under the bankruptcy code.
We believe that the proceeding will have no material adverse effect
upon the Company. However, as with any action of this type, the timing
and degree of any effect upon the Company are uncertain and there can be
no assurance that the proceeding will not have an adverse impact on the
Company in the future. The action is currently pending in the United
States Bankruptcy Court, Northern District of Texas, Dallas Division,
under Case No. 398-34353-RCM-7 (Chapter 7), styled In re: DataTell
Solutions, Inc. (Tax I.D. #75-2687364), Debtor.
Former subsidiary uniView Marketing Corporation ("UMC") was named as
a respondent by Davis A/S ("Davis") in a commercial, international
arbitration proceeding filed in May 1998. The action was filed in the
International Chamber of Commerce Court of Arbitration under Case No.
9981 FMS, styled Davis A/S v. Curtis Mathes Marketing Corporation. This
action has been dismissed without prejudice.
In October 1998 Raytheon Training, Inc., formerly known as Hughes
Training, Inc., filed an action against uniView Marketing Corporation
("UMC") and the Company, alleging that UMC failed to pay approximately
$475,000 under a contract between the parties dated October 25, 1994.
Although we sold UMC as of October 31, 1998, we retain a contingent
liability as guarantor of any amounts ultimately found to be due under
the contract. UMC and the Company filed a response to the claim, setting
forth various defenses. We intend to vigorously defend this action and
believe that we will prevail on our defenses. However, as with any
action of this type, the timing and degree of any effect upon the Company
are uncertain. If Raytheon prevails on the guaranty, it could have a
material adverse effect upon the Company. The action is currently
pending in the 342nd District Court of Tarrant County, Texas, under Case
No. 342-175836-98, styled Raytheon Training, Inc. f/k/a Hughes Training,
Inc. v. uniView Marketing Corporation f/k/a Curtis Mathes Marketing
Corporation and uniView Technologies Corporation f/k/a Curtis Mathes
Holding Corporation.
<PAGE>
Subsequent to June 30, 1999, we entered into a new Database Services
Agreement with TVData Technologies, L.P. and all litigation between the
parties was dismissed with prejudice. In return for being granted access
to TVData's database of TV listings for two more years, we pre-paid
$750,000 and issued 250,000 shares of our common stock to TVData. The
agreement further provides for an annual fee of $70,000 and a fee for
each of our customers that use the TV listings. The litigation was
previously reported as an arbitration proceeding filed with the American
Arbitration Association under Case No. 30 199 00278 98, styled TVData
Technologies, L.P. and Curtis Mathes Marketing Corporation; and another
action in the United States District Court for the Northern District of
Texas, under Case No. 399CV0103-J, styled TV Data Technologies, L.P. v.
uniView Technologies Corporation, f/k/a Curtis Mathes Holding
Corporation.
We are routinely a party to ordinary litigation incidental to our
business, as well as to other litigation of a nonmaterial nature, the
outcome of which we do not expect, individually or in the aggregate, to
have a material adverse effect on our financial condition or results of
operations in excess of the amount accrued for such purposes at June 30,
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
We held our 1998 Annual Shareholders' Meeting on May 13, 1999. Of
our 13,470,769 common shares issued and outstanding as of the Record
Date, 12,787,145 were represented in person or by proxy at the meeting,
which constituted a quorum for the transaction of all business to come
before the meeting.
The following proposals were approved by a majority of the shares
represented at the meeting:
1. Election of Directors:
Patrick A. Custer (FOR 12,650,082; WITHHELD 137,063.)
Edward M. Warren (FOR 12,649,982; WITHHELD 137,163.)
Bernard S. Appel (FOR 12,649,982; WITHHELD 137,163.)
Billy J. Robinson (FOR 12,650,082; WITHHELD 137,063.)
2. Ratification of the appointment of the accounting firm of Grant
Thornton LLP as independent auditors for the Company for the fiscal year
ended June 30, 1999.
FOR 12,647,483 AGAINST 108,367 ABSTAIN 31,295
The following proposal was NOT approved by the required number of
shareholder votes:
3. Authorization for the Company to issue, if required, the
remaining common shares for conversion of the Series Q Preferred Stock.
FOR 4,347,096 AGAINST 425,028 ABSTAIN 41,851
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Our Common Stock, $.10 par value (the "Common Stock") trades on the
Nasdaq Stock MarketSM under the symbol "UVEW." "The Nasdaq Stock Market"
or "Nasdaq" is a highly-regulated electronic securities market comprised
of competing Market Makers whose trading is supported by a communications
network linking them to quotation dissemination, trade reporting, and
order execution systems. This market also provides specialized
automation services for screen-based negotiations of transactions, online
comparison of transactions, and a range of informational services
tailored to the needs of the securities industry, investors and issuers.
The Nasdaq Stock Market consists of two distinct market tiers: the Nasdaq
National Marketr and the Nasdaq SmallCap MarketSM. The Nasdaq Stock
Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned
subsidiary of the National Association of Securities Dealers, Inc. The
quarterly high and low trade price information for our Common Stock for
each quarter in the last two fiscal years are presented below.
Quarter Ending Date High Trade Low Trade
Fiscal 1999
June 30, 1999 $ 4.75 $ 0.97
March 31, 1999 $ 2.25 $ 0.38
December 31, 1998 $ 0.97 $ 0.38
September 30, 1998 $ 2.44 $ 0.50
Fiscal 1998
June 30, 1998 $ 5.00 $ 1.41
March 31, 1998 $ 6.25 $ 1.25
December 31, 1997 $ 8.44 $ 1.25
September 30, 1997 $ 9.69 $ 4.69
As of August 31, 1999 there were a total of approximately 15,500
record shareholders and individual participants in security position
listings. As of the same date there were 16,919,274 common shares
outstanding. We have never paid cash dividends on common shares, and do
not anticipate doing so in the foreseeable future.
Recent Sales of Unregistered Securities
On June 1, 1999 we issued 1,000,000 shares of our Common Stock to an
accredited investor in partial conversion of $1 million of the 1997
Convertible Note, at a conversion rate of $1.00 per share. The issuance
was made pursuant to the exemption from registration provided by SEC
Regulation D.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
All financial data for the years referenced below were derived from
our Consolidated Financial Statements for those years and the
comparability of the information is affected by acquisitions,
dispositions, and other transactions which are described in the footnotes
which accompany those Consolidated Financial Statements, and which should
be read in conjunction with this five-year financial summary. Other
factors which may affect the comparability of the information for the
more recent fiscal years are discussed further in Item 7 below.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Consolidated Statement
of Operations Data
- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues $11,486,058 $ 2,487,213 $ 2,503,512 $ 7,656,836 $ 21,267,244
Net Loss (6,297,353) (17,418,141) (7,509,040) (5,887,313) (4,236,585)
Loss per Common Share(1) (0.52) (3.37) (2.33) (3.55) (4.40)
Loss from
Continuing Operations (6,297,353) (17,418,141) (8,298,466) (5,887,313) (4,409,585)
Loss from
Continuing Operations
per Common Share(1) (0.52) (3.37) (2.57) (3.55) (4.60)
Consolidated Balance
Sheet Data
- --------------------
Total Assets $ 14,080,768 $ 17,728,662 $ 15,474,753 $ 15,210,406 $ 14,088,400
Long Term Debt including
Current Maturities 3,823,210 3,835,315 525,837 1,450,435 3,282,706
Shareholders' Equity 8,336,978 7,300,231 12,300,635 11,723,532 2,920,780
</TABLE>
(1) Computed based upon the weighted average number of common shares
outstanding during each fiscal year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information to assist in the
understanding of our financial condition and results of operations and
should be read in conjunction with the Consolidated Financial Statements
and related notes appearing elsewhere herein.
<PAGE>
Forward Looking Statements
This report may contain "Forward Looking Statements," which are our
expectations, plans, and projections which may or may not materialize,
and which are subject to various risks and uncertainties, including
statements concerning expected expenses, Year 2000 readiness, and the
adequacy of our sources of cash to finance our current and future
operations. When used in this report, the words "plans," "believes,"
"expects," "anticipates," "estimates" and similar expressions are
intended to identify forward-looking statements. Factors which could
cause actual results to materially differ from our expectations include
the following: general economic conditions and growth in the high tech
industry; competitive factors and pricing pressures; changes in product
mix; the timely development and acceptance of new products; Year 2000
readiness of our suppliers, and the risks described from time to time in
the our SEC filings. These forward-looking statements speak only as of
the date of this report. We expressly disclaim any obligation or
undertaking to release publicly any updates or change in our expectations
or any change in events, conditions or circumstances on which any such
statement may be based, except as may be otherwise required by the
securities laws.
Overview
uniView Technologies Corporation offers the expertise and innovative
tools necessary to create fully customized video-on-demand, interactive
applications, e-commerce, and other interactive broadband services.
Building on a foundation of interactive broadband technology, and the
understanding of end user requirements, we have merged our Internet
access technologies and existing applications with the technologies of
our development partners to deliver the future of interactive networking
products and services. In 1997, we introduced our first revolutionary
set top box and, today, we use convergence devices and integration
expertise to design custom broadband networks for clients in multi-level
marketing, hospitality, medical facilities, utilities, banking, and
telecommunications. In addition to complete network system design and
integration, we also offer Web site development, web site hosting, and
full international Internet access, as well as product research and
development and customer service. More information about us can be found
at our Web site, www.uniView.net.
Results of Operations
Revenues
Total sales for fiscal year 1999 were $11.49 million, which
represents a significant increase over sales of $2.49 million in 1998.
Most of the sales for 1999 can be attributed to network system design and
integration services provided through our subsidiary, Network America,
Inc. ("NWA"), which was acquired at the end of fiscal year 1998; however,
we expect our Advanced Systems Group ("ASG") to substantially increase
its contribution to revenues during the coming year from contracts such
as those with Mary Kay and Domintel.
<PAGE>
Sales of $2.50 million during 1998 were the same as sales in 1997.
Substantially all sales for 1998 occurred as a direct result of our 1998
acquisitions. Sales in 1997 were diminished by unforeseen delays in the
introduction of the uniView set top box. All sales for 1997 resulted
from finished goods television products being exchanged for advertising
from a major cable television network.
Gross Profit
Gross profit in 1999 was 15.4%, compared to a negative 55.3% gross
profit in 1998. Gross margin for the sale of products for 1999 was
approximately $1.48 million, which represents an increase of
approximately $896,000 over 1998. Gross margin for service revenue for
1999 was $284,000, which represents an increase of approximately $1.3
million over 1998. Gross margin for product sales and services provided
by NWA is expected to remain fairly consistent in the future, while the
gross margin provided by ASG is expected to increase.
1998 is not comparable to 1997 as a result of a different product
and service mix provided in those years. Gross profit for 1998 was a
negative 20%, compared to a negative 4% in 1997. During fiscal 1997,
dated inventories were sold at below original cost while in 1998 costs of
running nationwide points of presence for the Internet service resulted
in additional costs.
Inventories and Software Costs Write-Down
During 1998 we wrote down our inventories related to our set top box
by $869,490, which represents the inventories estimated net realizable
value and had an additional provision for inventory obsolescence of $75,263.
No inventories were written down in 1999. The 1998 write-down
was the result of a change in the marketing strategy of our set top
boxes, which were initially offered on a retail basis in the consumer
electronics market. However, because of slow consumer acceptance of this
product category, we realized that set top box sales alone would not
produce the kind of return on investment that we hope to achieve for our
shareholders. We redirected our focus and determined not to sell uniView
set top boxes on a retail basis, but rather to bundle the product,
together with our connectivity and other computer-related services, and
market the resulting package in a commercially based market.
Approximately $2.4 million of software development costs related to
the uniView set top box were capitalized in 1998. Capitalized software
costs for the existing platform and operating system, which are not
expected to be used in the next generation of the uniView set top box on
a go-forward basis, were expensed and amounted to approximately $3
million. Software costs of approximately $414,000 were capitalized in 1999.
<PAGE>
Software development costs capitalized in connection with the
uniView Xpressway Internet service during 1998 and 1997 were $828,000 and
$1,151,000, respectively. We originally positioned ourselves to market
our uniView Xpressway Internet services to a broad based consumer market,
consistent with our initial marketing strategy for the set-top box. We
redirected our focus and determined to promote those services in the
commercial market, as an integral part of the uniView package. In
connection with this refocus and a review of capitalized software costs,
during 1998 we wrote-off approximately $452,000 of software development
costs attributable to the uniView Xpressway Internet service. No further
software costs in connection with the uniView Xpressway Internet service
were capitalized or written off in 1999.
Operating Expenses
Total operating expenses for fiscal 1999 decreased by $2.89 million
from 1998. Compensation expense increased over 1998 by $870,000, which
resulted from the effect of a full year's reporting of the employees
acquired with NWA at the end of last year. Expenses related to the
Internet online service were reduced by approximately $1 million in 1999
from 1998; public company expenses consisting of filing fees, brokerage
fees and commissions was reduced by $436,000 in 1999 from 1998; and
marketing and advertising expenses were reduced by $1.2 million in 1999
from 1998. Significant components of operating expenses for 1999
consisted of $3.67 million for compensation; $890,000 for facilities (net
of $1.4 million for depreciation); and $1.69 million for amortization of
software development costs, trademark and goodwill.
Operating expenses for fiscal 1998 increased by $3.75 million from
1997. Compensation expense increased in 1998 by $1.38 million over 1997
as a result of an increase in the number of employees of the Company.
Amortization of goodwill, trademark and software development costs, and
depreciation of property plant and equipment increased by approximately
$2.34 million during 1998 from 1997. This resulted primarily from
amortization of the capitalized software costs which we began to amortize
in 1998, as well as depreciation of equipment related to the Internet
service, which we began depreciating in 1998. In addition, we amortized
goodwill in connection with our acquisitions at the end of fiscal 1998.
In connection with the Internet service, we expensed approximately $1
million for connectivity related to frame relay, local loop carrier
charges and points of presence. These increases were partially offset by
other increases and decreases in expenses during 1998. Significant
components of operating expenses for 1997 consisted of $1,981,000 for
advertising and $517,000 for research and development.
Gain on Sale of Subsidiaries
On October 31, 1998 we completed the sale of our retail marketing
arm, uniView Marketing Corporation ("UMC"), and one of our computer
consulting subsidiaries, CompuNet Support Systems, Inc. ("CNSS"). UMC
was originally established to create a retail marketing presence for the
uniViewr set-top box. Even though this product was introduced and sold
though several retailers, we elected to focus on niche markets and not to
pursue the direct retail market. CNSS was acquired in 1998 and
represented a lower level duplication of our Advanced Systems Group
("ASG"). Many of the clients of CNSS have been assimilated into ASG,
<PAGE>
where the potential for growth and profitability is considered to be much
greater. In connection with the transaction, we reported a gain of $1.66
million, which consists primarily of a reduction in liabilities
associated with UMC.
Interest Expense
Interest expense increased to $472,000 in fiscal 1999 from $307,000
in fiscal 1998. This increase was a result of additional borrowings to
fund operations.
Interest expense increased to $307,000 in fiscal 1998 from $86,000
in fiscal 1997. This increase was primarily the result of additional
borrowings during 1998 intended to fund the uniView product and Internet
service operations.
Liquidity and Capital Resources
Cash Flows From Operations
Cash used by operations for the fiscal year ended June 30, 1999 was
$5.23 million, compared to $6.29 million in 1998. Major components of
cash flows from operations in fiscal 1999 included: $3.1 million for
depreciation and amortization; a decrease of $791,000 in accounts payable
and accrued liabilities; $1.66 million for recognition of gain on sale of
subsidiaries; and the effects of a $6.3 million loss from operations.
Cash used by operations for the fiscal years ended June 30, 1998 and
1997 were $6.29 million and $7.27 million, respectively. Major
components of cash flows from operations in fiscal 1998 included: $1.75
million decreases in prepaid expenses, a significant portion of which
relates to amounts reclassified to inventories which accounts for the
$1.1 million increase in inventories, approximately $500,000 of the
decrease in prepaid expenses relates to advertising costs expensed in
1998; the increase in accounts payable, accrued liabilities, and other
current liabilities of $3.28 million; $3.17 million for depreciation and
amortization; $4.39 million for the write down of inventories and
capitalized software; and the effects of a $17.4 million loss from
operations.
Major components of cash flows from operations for 1997 included:
$1.83 million for increases in prepaid expenses related to parts
inventories components for uniView production; $789,000 for recognition
of gain on extinguishment of debt (net of income taxes of $463,000); the
increase in accounts payable, accrued liabilities, and other payables of
$1.44 million; $691,000 for depreciation and amortization; and the
effects of a $7.5 million loss from operations.
Cash Flows From Investing Activities
During fiscal 1999, we purchased for cash $126,000 of property and
equipment as compared to $1.29 million in fiscal 1998. We paid $414,000
in cash for improvements to the uniView set top box product line and
Internet services in fiscal 1999 as compared to $3.22 million spent in
cash developing these product lines during fiscal 1998. We collected
another $201,000 on notes receivable and received $250,000 from the sale
of land in fiscal 1999.
<PAGE>
During fiscal 1998, we purchased for cash $1.29 million of property
and equipment as compared to $2.1 million during fiscal 1997. The
expenditures during 1998 relate primarily to property and equipment in
connection with the Internet service. We paid $3.22 million in cash for
continued development of the uniView set top box product line and
Internet services in fiscal 1998 as compared to $3.65 million spent in
cash developing these product lines during fiscal 1997. Additionally,
during 1998, we collected $627,000 on notes receivable; and $1.1 million
was paid in cash in 1997 for licensing of technologies pertaining to
software for the uniView and uniView Xpressway product lines.
Cash Flows From Financing Activities
We generated net cash from financing activities of $7.45 million
during the fiscal year ended June 30, 1999. Significant components
included $6 million received from preferred and common stock; $2.2
million received for convertible debentures and other borrowings; and
$500,000 used for payments on long term debt.
We generated net cash from financing activities of $11.7 million
during the fiscal year ended June 30, 1998. Significant components
included $9.65 million received from preferred and common stock; $2.5
million, the significant portion of which was received under a borrowing
arrangement; and $414,000 for payments on long term debt. A significant
portion of the preferred stock issued for cash was converted into common
stock.
We generated net cash from financing activities of $11.8 million
during the fiscal year ended June 30, 1997. Significant components
included $8.3 million received from issuances of preferred and common
stock; $1 million received from advances under our borrowing arrangement
that was later converted to common stock; $1.2 million paid in cash for
preferred stock redeemed; $643,000 for payments on long term debt; and
the receipt of $4.35 million cash for common stock issued in the prior
year.
Other Matters
Cash Flow
During the fiscal years ended June 30, 1999, 1998 and 1997 we did
not achieve a positive cash flow from operations. Accordingly, we rely
on available borrowing arrangements and continued sale of our common
stock and preferred stock to fund operations until a positive cash flow
from operations can be achieved. We expect to achieve a positive cash
flow in the coming fiscal year; however, if we are unable to achieve a
positive cash flow from operations, additional financing or placements
will be required. We continually evaluate opportunities with various
investors to raise additional capital, without which, our growth and
profitability could be restricted. Although we believe that sufficient
financing resources are available, there can be no assurance that such
resources will continue to be available to us or that they will be
available upon favorable terms.
<PAGE>
Nasdaq Listing
Nasdaq initiated a listing requirement review of our stock in 1998
as a result of our common stock trading below the minimum required Nasdaq
SmallCap Market bid price of $1.00 per share for more than 30 days. In
addition to regaining compliance with the bid price requirement, Nasdaq
required us to demonstrate that we had the ability to sustain long term
compliance with all applicable Nasdaq maintenance criteria. Subsequent
to June 30, 1999, Nasdaq notified us that we had achieved the required
level and that we were in compliance with all Nasdaq SmallCap Market
listing maintenance requirements.
Readiness for Year 2000
We have recognized the need to ensure that our operations and
relationships with vendors and other third parties will not be adversely
impacted by software processing errors arising from the calculations
using the Year 2000 ("Y2K") and beyond.
We have created a company-wide Y2K team to identify and resolve Y2K
issues associated with our internal information systems, internal non-
information systems, the products and services we sell, and our major
suppliers of products and services. We established a Y2K program
coordinator to ensure these programs are implemented across the Company.
The coordinator provides a single point of reference, both internal, and
external, for us. Our products are Y2K compliant. Our internal
reporting system has been upgraded to a Y2K compliant system. In
addition, we are communicating with our suppliers, customers, vendors and
financial service organizations regarding their Year 2000 compliance. We
anticipate that our full Year 2000 review, new information system
implementation, and other necessary remediation actions will be
substantially complete by the end of the third quarter of 1999. We
estimate our total cost of achieving Year 2000 compliance will be less
than $50,000. We have funded these expenditures through our normal
operating budget, and as required by generally accepted accounting
principles, these costs are being expensed as incurred. We do not
believe that the costs associated with such actions will have a material
adverse effect on our results of operations or financial condition.
However the costs of such actions may vary from quarter to quarter, and
there is no assurance that there will not be a delay in our
implementation or increased costs associated with the implementation of
such changes. Failure to achieve Y2K readiness could delay our ability
to ship products and deliver services. Our inability to perform these
functions could have an adverse effect on future results of operations or
financial condition.
Non-IT systems include, but are not limited to, telephone systems;
fax machines; facilities systems regulating alarms, building access and
sprinklers; and other miscellaneous systems and processes. Y2K readiness
for these internal non-IT systems is the responsibility of our Y2K
coordinator. We anticipate that all Non-IT systems will be compliant if
they are not already compliant by the end of the third quarter of 1999.
<PAGE>
We regularly review and monitor our suppliers' Y2K readiness plans
and performance. In some cases, to meet Y2K readiness, we have replaced
suppliers or eliminated suppliers from consideration for new business.
While we have contingency plans in place to address most issues under our
control, an infrastructure problem outside of our control could result in
a delay in delivery of products of services depending on the nature and
severity of the problems. We would expect that most utilities and
service providers would be able to restore service within days although
more pervasive system problems involving multiple providers could last
two to four weeks or more depending on the complexity of the systems and
the effectiveness of their contingency plans. Although we are dedicating
significant resources towards attaining Y2K readiness, there is no
assurance we will be successful in our efforts to identify and address
all Y2K issues. Even if we act in a timely manner to complete all of our
assessments; identify, develop and implement remediation plans believed
to be adequate; and develop contingency plans believed to be adequate,
some problems may not be identified or corrected in time to prevent
material adverse consequences to the Company. The discussion above
regarding estimated completion dates, costs, risks and other forward-
looking statements regarding Y2K is based on our best estimates given
information that is currently available and is subject to change. As we
continue to progress with our Y2K initiatives, we may discover that
actual results will differ materially from these estimates.
Factors That May Affect Future Results
We participate in a highly volatile industry which is characterized
by rapidly changing patterns and fierce industry-wide competition. It is
clear that we will be required from time to time to adjust our focus to
adapt to the rapidly changing marketplace. Any delay or failure in
anticipating or responding to such rapidly changing conditions could have
an adverse effect upon our anticipated operating results.
Outlook: Issues and Uncertainties
We do not provide forecasts of future financial performance. While
we continue to pursue new business that complements our overall business
plan, the following issues and uncertainties, among others, should be
considered in evaluating our growth outlook.
Rapid Technological Change
The computer systems design services and interactive broadband
industry is undergoing rapid changes including evolving industry
standards, frequent new product and services introductions and changes in
customer requirements and preferences. The introduction of new
technologies, products and services can render our existing and announced
technologies, products and services obsolete or unmarketable. The
development cycle for new technology may be significantly longer than our
past development cycle for existing and proposed technology and may
require us to invest our resources in areas that may not become
profitable. There can be no assurance that the expected demand for our
technologies, products and services will materialize or continue or that
the mix of our future offerings will keep pace with technological changes
or satisfy evolving customer preferences or that we will be successful in
developing and marketing future technologies, products and services.
Failure to keep pace with customer preferences and requirements in a
timely fashion could have a material adverse effect on our business,
operating results and financial condition.
<PAGE>
Long-term Research and Development Investment Cycle
Software requires an investment in its development which often
involves a long payback cycle. We have made significant investments in
software research and development in the past, which may not be recouped
in the near future; however, we expect spending for research and
development in 2000 to remain low.
Limited Protection of Intellectual Property and Proprietary Rights: Risk
of Litigation
We regard our convergence technology containing software-related
components as proprietary and we rely primarily on a combination of
trademark, copyright and trade secret laws, employee and third-party
nondisclosure agreements, and other methods to protect these proprietary
rights. As the number of convergence products in the industry increases
and the functionality of these products overlap, infringement claims may
also increase. There can be no assurance that third parties will not
assert infringement claims against us in the future with respect to
current or future products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates which
may adversely affect our financial position, results of operations and
cash flows. In seeking to minimize the risks from interest rate
fluctuations, we manage exposures through our regular operating and
financing activities. We do not use financial instruments for trading or
other speculative purposes and we are no party to any leveraged financial
instruments.
We are exposed to interest rate risk primarily through our borrowing
activities, which are described in the "Long-Term Debt" Notes to the
Consolidated Financial Statements, which are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and related Financial Statement
Schedules are included immediately following the signature page of this
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
A new independent accountant, Grant Thornton LLP, was engaged as of
December 1, 1998 as the principal accountant to audit the Registrant's
financial statements beginning with fiscal year ended June 30, 1999.
The client-auditor relationship with King Griffin & Adamson P.C.
ended, with the approval of our audit committee, as of December 1, 1998.
The change resulted from our desire to move to a larger firm.
<PAGE>
During our two most recent fiscal years and the subsequent interim
period preceding termination of the relationship, there were no
disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. Although unrelated to the change, the former
accountant's report on our financial statements for fiscal year 1998
contained an opinion that was qualified concerning our ability to
continue as a going concern. The former accountant was provided with a
copy of the above disclosures and was requested to furnish us with a
letter addressed to the Commission stating whether it agrees with the
above statements and, if not, stating the respects in which it does not
agree. The former accountant's letter was filed as an exhibit to our
Current Report on form 8-K dated December 1, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors
The following sets forth, with respect to each member of our Board
of Directors as of June 30, 1999, his name, age, period served as
director, present position, if any, with the Company and other business
experience. All directors serve one-year terms between annual meetings
of shareholders.
Patrick A. Custer, 50, is the Chairman of the Board, President and
Chief Executive Officer. Mr. Custer served as a director from 1984 to
1985, and from 1987 until the present. He served as President and Chief
Executive Officer from 1984 to 1985 and from September 1992 until the
present. From 1986 until 1990, Mr. Custer was an international business
consultant for Park Central Funding (Guernsey), Ltd. From 1978 until
1982, Mr. Custer was a general securities principal and worked for a
major brokerage firm as a corporate finance specialist and was owner of
his own brokerage firm. He was responsible for structuring and funding
IPO's, real estate, energy companies, and numerous high-tech start-up
companies. Mr. Custer's technical experience includes engineering and
management positions with Texas Instruments and Honeywell. Mr. Custer is
a graduate of Texas Tech University in Finance and Management, with
additional studies in Electrical Engineering and master studies in
Finance.
Edward M. Warren, 58, has been a director since September 1992.
Since 1980, he has been the Registered Principal and Branch Manager for a
major securities firm in Albany, New York. He is also a Financial
Consultant, having presented numerous financial seminars over the years
throughout eastern New York and western New England. He is also a co-
founder of the Coronado Group, through which he has in the past provided
professional services to the financial community, such as the analysis of
economic and market conditions, review of financial products, exchange of
marketing ideas, and continuing evaluation and recommendation of asset
allocation models. Mr. Warren received his undergraduate degree from
Williams College and holds a Master of Arts degree from Harvard
University.
<PAGE>
Billy J. Robinson, 51, has been a director since March 1994. He has
also served as Vice President/ General Counsel since October 1993, and as
Secretary since June 1994. Mr. Robinson has over twenty years legal
experience, representing banks and other financial institutions, with a
concentration in commercial transactions. Mr. Robinson is admitted to
practice before the United States Supreme Court, the United States
District Court for the Northern District of Texas and the District of New
Mexico, and is licensed to practice before all state courts in Texas and
New Mexico. Mr. Robinson is a certified Mediator in the State of Texas
and is the author of the 1994-95 Real Estate Law Correspondence Course
for the Texas Tech University Paralegal Certification Program.
Bernard S. Appel, 67, has been a director since February 1995. He
has enjoyed a career of 34 years with Radio Shack, holding every key
merchandising and marketing position, culminating with his promotion to
president in 1984. In 1992 he was promoted to Chairman of Radio Shack
and Senior Vice President of Tandy Corporation. Since July 1993, Mr.
Appel has operated the private consulting firm of Appel Associates.
Executive Officers
The following sets forth, with respect to each executive officer not
heretofore named, as of June 30, 1999, his name, age, present position
and offices held, period of service in such capacity, and other business
experience.
Thomas W. (Bill) Park, 64, has been Vice President and Chief
Operating Officer of various subsidiaries of the Company since October 3,
1994. He is responsible for securing strategic technology partners to
ensure leading-edge product design and manufacturing of uniView products
and the uniView Xpressway systems and services. He has in the past
managed annual sales in excess of $250 million, both domestic and abroad.
Mr. Park has a dynamic breadth of experience in manufacturing, quality
assurance, engineering, product development and customer service. Mr.
Park enjoyed a career of 29 years with CMC, before leaving in August,
1993 for a position as Vice President of Benelec Corporation, an
international trading company dealing in electronics, medical supplies,
and other products. From August, 1993 until his return to the company in
1994, Mr. Park continued to make his knowledge and experience available
to CMC as a consultant. During his career with CMC, he served in various
positions with the company, beginning as an Office Manager/ Cost
Accountant in 1964 and culminating as Executive Vice President in 1985,
in which capacity he served until 1993. Mr. Park has traveled
extensively and maintains valuable business contacts in Europe and Asia.
He holds a Bachelor of Business Administration degree in Finance from the
University of Texas.
<PAGE>
Thomas P. O'Mara, 39, joined the Company in August, 1996, and in
April, 1997 was promoted to Vice President/ Sales and Marketing of all
operating subsidiaries of the Company, bringing with him more than 14
years of experience in the consumer electronics industry. Mr. O'Mara is
responsible for the sales, marketing and advertising strategy for
uniView's set-top box applications, and the uniView Xpressway, the
Company's Internet-access system and on-line service. In addition, Mr.
O'Mara has applied his broad technology expertise in the actual
development, design and execution of the uniView technology. He also
supervises corporate marketing and communications, channel partner
programs, and strategic alliance programs. Prior to joining the Company,
Mr. O'Mara spent 13 years with Pioneer Electronics, during which time he
was directly involved in sales and marketing aspects for the majority of
all of Pioneer's consumer electronics products. Mr. O'Mara received a
bachelor of business administration degree in accounting from LaSalle
University (Philadelphia, Pa.).
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the 1934 Act ("Section 16(a)"), requires our
directors, executive officers and persons who beneficially own more than
10% of a registered class of our equity securities ("10% Owners") to file
reports of beneficial ownership of our securities and changes in such
beneficial ownership with the Securities and Exchange Commission
("Commission"). Directors, executive officers and 10% Owners are also
required by rules promulgated by the Commission to furnish us with copies
of all forms they file pursuant to Section 16(a).
Based solely upon a review of the copies of the forms filed pursuant
to Section 16(a) furnished to us, or written representations that no year-
end Form 5 filings were required for transactions occurring during fiscal
year ended June 30, 1999, we believe that during the fiscal year ended
June 30, 1999, all Section 16(a) filing requirements applicable to our
directors, executive officers and 10% Owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid over the last
three completed fiscal years to our Chief Executive Officer and any other
executive officer who received compensation of $100,000 or more during
the fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
<PAGE>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other
Name and Year Other Restricted Securities LTIP Compen-
Principal Ended Annual Stock Underlying Payouts sation
Position Jun. 30 Salary($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patrick A. Custer 1999 184,728 -0- 12,000 -0- -0- -0- -0-
Chairman of the 1998 170,000 -0- 12,000 -0- 15,000 -0- -0-
Board and CEO 1997 151,310 11,200 12,000 -0- 40,000 -0- -0-
Billy J. Robinson 1999 135,722 -0- 7,500 -0- -0- -0- -0-
Vice President, 1998 125,000 -0- 27,500 18,177 15,000 -0- -0-
General Counsel 1997 110,481 11,200 27,500 43,625 15,000 -0- -0-
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table shows aggregate exercises of options (or tandem
stock appreciation rights) and freestanding stock appreciation rights
during the fiscal year ended June 30, 1999 by each of the named executive
officers.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#)(1) FY-End ($)(1)(2)
Name and Shares Value
Principal Acquired Realized Exercisable (E)/ Exercisable/
Position on Exercise ($)(1) Unexercisable (U) Unexercisable
- -------- ----------- ------ ----------------- -------------
Patrick A. Custer
Chairman of the 35,000 (E) --
Board and CEO -- -- 15,000 (U) --
Billy J. Robinson
Vice President, 21,250 (E) --
General Counsel -- -- 8,750 (U) --
(1) The Company has not made any grants of SARs.
(2) On June 30, 1999 the options were not considered "in-the-money," as
the fair market value of the underlying securities on that date
($2.25) did not exceed the exercise price of the options.
<PAGE>
Compensation of Directors
None of the inside directors are paid compensation as such, except
for services performed in another capacity, such as an executive officer.
The outside directors are paid $500 per meeting, plus their expenses for
attending Board of Director meetings. During fiscal 1999, we
additionally granted each of the two outside directors stock options to
purchase 50,000 shares of Common Stock. The options have a five year
life, vested immediately and are priced at the average closing bid price
of the Common Stock, as reported by NASDAQ, for the five (5) trading days
immediately preceding the date of grant. The exercise price of the
options is $1.83 per share and the market price of the Common Stock on
the date of grant, July 25, 1998, was $1.84 per share.
Employment Contracts and Termination and Change-in-Control Arrangements
In April 1997 we entered into employment agreements with named
executive officers Messrs. Custer and Robinson for approximately a three-
year term, ending on December 31, 1999. The terms of both employment
agreements include an agreed annual salary, employee benefits,
nonstatutory stock options, portions of which vest at certain times
depending on the employee's continued tenure with us, and provisions
concerning termination of employment upon sale or change in control. For
a description of these terms, reference is made to the agreements filed
as Exhibits to our Form 10-K for the fiscal year ended June 30, 1997.
Compensation Committee Interlocks and Insider Participation
Mr. Custer and Mr. Robinson participated in advising our Board of
Directors concerning certain aspects of executive officer compensation
during the last completed fiscal year. Mr. Custer is Chairman of the
Board, President and Chief Executive Officer; and Mr. Robinson is Vice
President, Secretary, General Counsel, and a Director.
Board of Directors Report on Executive Compensation
Executive Compensation
We have structured our executive compensation program within our
financial framework with a goal of attracting and retaining high-quality
executive talent. The executive compensation program consists generally
of base salary and employee benefits. We review our compensation
programs periodically and compare our pay practices with other similar
companies and with companies staffed with similarly-skilled executives.
During the first fiscal quarter of each year, we review salary increases
for the current year and, considering our financial performance and each
executive officer's perceived contribution to that performance, salaries
are set accordingly.
<PAGE>
Chief Executive Officer
For the year ended June 30, 1999, Mr. Custer received $196,728 for
his services as President and Chief Executive Officer. The factors we
considered in setting his compensation include Mr. Custer's leadership in
restructuring the Company, his contribution to our strategic focus and
financial positioning, and included a consideration of his
responsibilities, experience, and skills.
Patrick A. Custer (Chairman) Edward M. Warren
Bernard S. Appel Billy J. Robinson
The foregoing report is not incorporated by reference in any prior
or future filings of the Company under the Securities Act of 1933, as
amended (the "1933 Act"), or under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), unless we specifically incorporate the
report by reference and the report shall not otherwise be deemed filed
under such Acts.
Performance Graph
The following graph compares total stockholder returns of the
Company ("uniView") since June 30, 1994 to two indices: (1) the "NASDAQ
Market Index ("NASDAQ");" and (2) the aggregate price performance of
equity securities of companies classified under North American Industry
Classification System (NAICS) code 541512 for Computer Systems Design
Services ("MG Group").
The total return shown for our stock and for each index assumes the
reinvestment of dividends, even though dividends have never been declared
on our stock. The NASDAQ Market Index tracks the aggregate price
performance of equity securities of companies traded on the NASDAQ Stock
Market. The MG Group Index tracks the aggregate price performance of
equity securities of companies traded on the various exchanges, including
the NASDAQ Stock Market, which are grouped under NAICS code 541512 for
Computer Systems Design Services.
The graph should be viewed in the context of the disposition of
subsidiary Southwest Memory, Inc. during fiscal year ended June 30, 1995,
the curtailment of the commodity consumer electronics business operations
of subsidiary Curtis Mathes Corporation during fiscal year ended June 30,
1996, the introduction during fiscal year ended June 30, 1997 of our
technologically advanced Internet access uniView products and uniView
Xpressway Online Service, and the addition during fiscal year ended June
30, 1998 of system integration, technical support and network consulting
to its comprehensive array of interactive business solutions with the
acquisition of Network America, Inc. Accordingly, the graph may not
necessarily indicate our future performance.
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
uniView 100.00 22.02 44.00 28.99 6.91 7.20
MG Group 100.00 130.16 172.30 159.57 200.99 213.23
NASDAQ 100.00 117.28 147.64 177.85 235.75 330.37
<PAGE>
The foregoing graph is not incorporated in any prior or future
filings of the Company under the 1933 Act or the 1934 Act, unless we
specifically incorporate the graph by reference, and the graph shall not
otherwise be deemed filed under such Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30,
1999 with respect to the beneficial ownership of Common Stock by (i)
persons known to us to be the beneficial owners of more than 5% of the
outstanding shares of Common Stock, (ii) all directors of the Company,
(iii) each of the executive officers named in the Summary Compensation
Table (appearing in Item 11) and (iv) all directors and executive
officers of the Company and significant subsidiaries as a group.
The number of shares of Common Stock beneficially owned by each
individual set forth below is determined under the rules of the
Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which an individual has sole or
shared voting power or investment power and any shares which an
individual presently, or within 60 days of September 28, 1999 (the date
on which this Form 10-K is due at the Commission, the "Due Date"), has
the right to acquire through the exercise of any stock option or other
right. Unless otherwise indicated, each individual has sole voting and
investment power (or shares such powers with his spouse) with respect to
the shares of Common Stock set forth in the following table. The
information is based upon corporate records, information furnished by
each shareholder, or information contained in filings made with the
Securities and Exchange Commission.
Number of Shares
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
5% Beneficial Owners
Alscomm, Inc. 800,000(1) 5.33%
16885 Dallas Parkway, Suite 313
Dallas, Texas 75248
Geneva Reinsurance Company, Ltd. 3,141,290(2) 17.30%
P.O. Box 1561
Zephyr House, Mary Street
Grand Cayman, British West Indies
Nations Investment Corp., Ltd. 1,000,000(3) 6.24%
P.O. Box 1561
Zephyr House, Mary Street
Grand Cayman, British West Indies
Directors
Patrick A. Custer 359,040(4) 2.38%
Edward M. Warren 85,250(5) 0.56%
Billy J. Robinson 39,139(6) 0.26%
Bernard S. Appel 70,000(7) 0.46%
<PAGE>
Executive Officers
Patrick A. Custer 359,040(4) 2.38%
Billy J. Robinson 39,139(6) 0.26%
All Directors and Executive
Officers as a Group 609,879(8) 4.00%
(1) Common shares owned.
(2) Common shares issuable upon conversion of debenture and convertible
note.
(3) Common shares issuable upon exercise of warrants.
(4) Includes 17,500 shares owned outright by Mr. Custer; 35,000 shares
issuable to Mr. Custer upon exercise of vested nonstatutory Employee
Stock Options; 261,830 shares held of record by Custer Company,
Inc., a family trust, over which Mr. Custer exercises voting
control; 20,000 shares issuable to Custer Company, Inc. upon
exercise of warrants; 23,750 shares owned by his wife; 940 shares
held by his wife for the benefit of his minor daughter; and 10
shares each held by Mr. Custer for the benefit of his two sons.
(5) Includes 20,250 shares owned outright, and 65,000 shares issuable to
Mr. Warren upon exercise of vested nonstatutory stock options.
(6) Includes 17,889 shares owned outright, and 21,250 shares issuable to
Mr. Robinson upon exercise of vested nonstatutory Employee Stock
Options.
(7) Includes 5,000 shares owned outright, and 65,000 shares issuable to
Mr. Appel upon exercise of vested nonstatutory stock options.
(8) Includes 553,429 shares beneficially owned by all directors. Also
includes 6,695 shares owned outright, and 22,610 shares issuable to
Mr. Park upon exercise of vested nonstatutory Employee Stock
Options. Also includes 5,895 shares owned outright, and 21,250
shares issuable to Mr. O'Mara upon exercise of vested nonstatutory
Employee Stock Options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the financial statements filed as part of
this report.
<PAGE>
(2) Financial Statement Schedules
Reference is made to the financial statement schedules filed as
part of this report.
All other schedules are omitted because they are not applicable
or not required, or because the required information is
included in the financial statements or notes thereto.
(3) Exhibits
Reference is made to the Exhibit Index at the end of this Form
10-K for a list of all exhibits filed with and incorporated by
reference in this report.
(b) Reports on Form 8-K
During the three months ended June 30, 1999 the Company filed
one Current Report on Form 8-K, dated June 10, 1999 reporting
the Company's $18 million transaction with Brown Simpson Asset
Management L.L.C.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. With the exception of historical information, the
matters discussed or incorporated by reference in this Annual Report on
Form 10-K are forward-looking statements that involve risks and
uncertainties including, but not limited to, economic conditions, product
demand and industry capacity, competitive products and services and
pricing, manufacturing efficiencies, new product development, ability to
enforce intellectual property rights, and other risks indicated in
filings with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIVIEW TECHNOLOGIES CORPORATION
By: /s/ PAT CUSTER
Patrick A. Custer
President and Chief Executive Officer
September 21, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Principal Executive Officer
and Principal Financial Officer
/s/ PAT CUSTER Chairman of the Board, September 21, 1999
Patrick A. Custer President, Chief Executive
Officer and Director
Principal Accounting Officer
<PAGE>
/s/ MULUGETA GHEBREMARIAM Controller September 21, 1999
Mulugeta Ghebremariam
Additional Directors
/s/ BILLY J. ROBINSON Vice President, Secretary, September 21, 1999
Billy J. Robinson General Counsel and Director
/s/ EDWARD M. WARREN Director September 21, 1999
Edward M. Warren
/s/ BERNARD S. APPEL Director September 21, 1999
Bernard S. Appel
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
uniView Technologies Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of uniView
Technologies Corporation and Subsidiaries as of June 30, 1999, and the
related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These financial
statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating
the overall financial statement presentation. We believe our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
uniView Technologies Corporation and Subsidiaries as of June 30, 1999 and
the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted
accounting principles.
We have also audited Schedule II for the year ended June 30, 1999. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $6,297,353 in 1999 and
$17,418,141 in 1998. These factors, among others, as discussed in Note B
to the financial statements raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to
these matters are described in Note B. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
GRANT THORNTON LLP
Dallas, Texas
September 10, 1999
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
uniView Technologies Corporation and Subsidiaries (Formerly Curtis Mathes
Holding Corporation)
We have audited the consolidated balance sheets of uniView Technologies
Corporation and Subsidiaries as of June 30, 1998, and the related
consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the two year period ended June
30, 1998. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating
the overall financial statement presentation. We believe our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
uniView Technologies Corporation and Subsidiaries as of June 30, 1998,
and the results of their operations and their cash flows for each of the
two year period ended June 30, 1998, in conformity with generally
accepted accounting principles.
We have also audited Schedule II for each of the two years in the period
ended June 30, 1998. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note B to the consolidated financial statements, the Company has
experienced recurring losses and has a working capital deficiency that
raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note B. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
September 14, 1998
<PAGE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 1999 1998
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 4,412,664 $ 2,284,988
Trade accounts receivable, net of allowance
of $76,510 and $20,017 in 1999 and 1998 1,117,308 1,726,900
Notes receivable, current portion, net of
allowance of $29,417 in 1998 - 129,902
Inventories 436,583 943,048
Prepaid expenses 28,283 166,003
------------ ------------
Total current assets 5,994,838 5,250,841
PROPERTY AND EQUIPMENT,
net of accumulated depreciation 1,310,207 3,305,449
OTHER ASSETS
Notes receivable, less current portion,
net of allowance of $195,000 - 70,654
Software development costs, net of accumulated
amortization of $3,038,519 in 1999 and
$1,747,694 in 1998 1,690,958 2,620,996
Licenses, net of accumulated amortization
of $123,750 in 1999 and $75,416 in 1998 151,250 1,054,703
Trademark, net of accumulated amortization
of $1,308,119 in 1999 and $1,066,931 in 1998 3,576,636 3,820,874
Goodwill, net of accumulated amortization of
$318,730 in 1999 and $218,977 in 1998 1,302,699 1,557,559
Other 54,180 47,586
------------ ------------
Total other assets 6,775,723 9,172,372
============ ============
Total assets $ 14,080,768 $ 17,728,662
<PAGE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------
CURRENT LIABILITIES
Trade accounts payable $ 778,485 $ 4,224,897
Accrued and other current liabilities 1,142,095 2,053,673
Line of credit 710,858 -
Current maturities of long-term debt 366,447 3,644,729
Current maturities of obligations under
capital leases 55,168 50,666
Deferred income - 69,889
------------ ------------
Total current liabilities 3,053,053 10,043,854
LONG TERM DEBT, less current maturities 2,590,017 15,495
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 100,720 124,425
WARRANTY PROVISION - 244,657
------------ ------------
Total liabilities 5,743,790 10,428,431
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, cumulative, $1.00 par value;
1,000,000 shares authorized
Series A, 140,000 shares issued and outstanding
(liquidation preference of $140,000) 140,000 140,000
Series H, 3 shares issued and outstanding
(liquidation preference of $75,000) 3 3
Series Q, 60 shares issued and outstanding at
June 30, 1998 (liquidation preference of $1,500,000) - 60
Series 1998-A1, 80 shares issued and outstanding at
June 30, 1998 (liquidation preference of $2,000,000) - 80
Series 1999-C, 44 shares issued and outstanding at
June 30, 1999 (liquidation preference of $1,100,000) 44 -
Series 1999-D1, 720 shares issued and outstanding at
June 30, 1999 (liquidation preference of
$18,000,000) 720 -
Series 1999-E, 96 shares issued and outstanding at
June 30, 1999 (liquidation preference of $2,400,000) 96 -
Common stock, $.10 par value; 80,000,000 shares
authorized; 15,013,150 and 10,032,670 shares
issued and outstanding at June 30, 1999
and 1998, respectively 1,501,315 1,003,267
Additional paid in capital 49,128,729 42,480,261
Accumulated deficit (42,433,929) (36,323,440)
------------ ------------
Total stockholders' equity 8,336,978 7,300,231
------------ ------------
Total liabilities and
stockholders' equity $ 14,080,768 $ 17,728,662
============ ============
The accompanying notes are an integral part of these statements.
<PAGE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30, 1999 1998 1997
------------ ------------ ------------
Revenues
Product sales $ 10,160,563 $ 2,197,507 $ 2,503,512
Services 1,325,495 289,706 -
------------ ------------ ------------
Total revenues 11,486,058 2,487,213 2,503,512
Cost of products and services
Cost of product sales 8,677,047 1,609,807 2,357,287
Provision for inventory obsolescence - 944,753 255,115
Cost of services 1,041,840 1,309,297 -
------------ ------------ ------------
Total cost of revenue 9,718,887 3,863,857 2,612,402
------------ ------------ ------------
Gross margin 1,767,171 (1,376,644) (108,890)
Operating expenses 9,680,502 12,569,050 8,801,723
Write-down of software development costs - 3,519,584 -
------------ ------------ ------------
Operating loss (7,913,331) (17,465,278) (8,910,613)
Other (income) expense
Loss from sale of land 82,800 - -
Interest and other income (510,106) (354,062) (235,404)
Interest expense 471,545 306,925 86,292
Gain on sale of subsidiaries (1,660,217) - -
------------ ------------ ------------
Total other (income) expense (1,615,978) (47,137) (149,112)
------------ ------------ ------------
Loss from continuing operations before
income taxes and extraordinary item (6,297,353) (17,418,141) (8,761,501)
Income tax benefit - - 463,035
------------ ------------ ------------
Loss from continuing operations
before extraordinary items (6,297,353) (17,418,141) (8,298,466)
Extraordinary item
Gain on extinguishment of debt, net
of income taxes of $463,035 in 1997 - - 789,426
------------ ------------ ------------
NET LOSS (6,297,353) (17,418,141) (7,509,040)
Dividend requirements on
preferred stock 199,441 391,445 27,223
------------ ------------ ------------
Net loss attributable to common
stockholders $ (6,496,794) $(17,809,586) $ (7,536,263)
============ ============ ============
Per share amounts allocable to
common stockholders
Loss from continuing operations $ (.52) $ (3.37) $ (2.57)
Gain from extraordinary item $ - $ - $ 0.24
Net loss $ (.52) $ (3.37) $ (2.33)
Weighted average common shares
outstanding 12,402,179 5,282,511 3,230,759
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Additional
Common Stock Preferred Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
--------- ---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances - July 1, 1996 2,431,120 $ 243,112 262,744 $ 262,744 $22,193,525 $ (10,975,850)
Redemption of Series G preferred stock
for cash - - (117,305) (117,305) (1,055,745) -
Conversion of Series H preferred stock
for common stock 87,907 8,791 (52) (52) (8,739) -
Issuance of Series I preferred stock for cash - - 800 800 728,200 -
Conversion of Series I preferred stock
to common stock 520,014 52,001 (6,185) (6,185) (45,816) -
Issuance of Series J preferred stock for cash - - 1,625 1,625 1,460,875 -
Conversion of Series J preferred stock
for common stock 148,114 14,811 (1,625) (1,625) (13,186) -
Issuance of common stock for cash 322,000 32,200 - - 3,568,426 -
Issuance of Series K preferred stock for cash - - 11 11 983,876 -
Issuance of Series L preferred stock for cash - - 1,500 1,500 1,423,500 -
Conversion of Series K preferred stock
for common stock 13,550 1,355 (1) (1) (1,353) -
Issuance of common stock
for warrants exercised 10,000 1,000 - - 81,000 -
Conversion of Series L preferred stock
for common stock 30,380 3,038 (225) (225) 2,813 -
Conversion of line of credit note payable
for common stock 107,835 10,784 - - 1,000,216 -
Dividends paid in cash - - - - - (40,446)
Net loss - - - - - (7,509,040)
--------- ---------- -------- ---------- ----------- -------------
Balances - June 30, 1997 3,670,920 367,092 141,287 141,287 30,317,592 (18,525,336)
</TABLE>
<PAGE>
<TABLE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
<CAPTION>
Additional
Common Stock Preferred Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
--------- ---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash 100,000 $ 10,000 - $ - $ 240,000 $ -
Issuance of common stock in exchange for
equity position in land partnership 142,359 14,236 - - 265,764 -
Issuance of common stock in exchange for
settlement of debt, interest and
accounts payable 764,604 76,460 - - 1,180,747 -
Issuance of common stock for acquisition
of VMI 800,000 80,000 - - 723,000 -
Conversion of Series K preferred stock
including accrued dividends for
common stock 164,220 16,422 (9) (9) (9,499) (6,913)
Conversion of Series L preferred stock
for common stock 248,857 24,886 (1,275) (1,275) (23,611) -
Issuance of Series M preferred for cash - - 140 140 3,289,860 -
Conversion of Series M preferred stock
including accrued dividends
for common stock 1,892,505 189,251 (140) (140) 55,721 (244,832)
Issuance of Series N preferred for cash - - 120 120 2,819,880 -
Conversion of Series N preferred stock
including accrued dividends for
common stock 2,248,903 224,890 (120) (120) (101,577) (123,194)
Issuance of Series Q preferred for cash - - 60 60 1,409,940 -
Dividends paid through issuance of
common stock 240 24 - - - (24)
Warrants issued for services - - - - 432,530 -
Dividends paid in cash - - - - - (5,000)
Issuance of Series 1998-A1 preferred
stock for cash - - 80 80 1,879,920 -
Post reverse split rounding adjustment 62 6 - - (6) -
Net loss - - - - - (17,418,141)
--------- ---------- -------- ---------- ----------- -------------
Balances - June 30, 1998 10,032,670 1,003,267 140,143 140,143 42,480,261 (36,323,440)
</TABLE>
<PAGE>
<TABLE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
<CAPTION>
Additional
Common Stock Preferred Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
---------- ---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of Series Q preferred
including accrued dividends for
common stock 1,761,879 $ 176,188 (28) $ (28) $ (168,446) $ (7,714)
Conversion of Series 1998 A-1 preferred
including accrued dividends for
common stock 563,100 56,310 (12) (12) (52,751) (3,547)
Issuance of common stock for cash 1,375,000 137,500 - - 412,500 -
Issuance of common stock for
warrants exercised 200,000 20,000 - - 55,983 -
Preferred stock dividends - - - - - (1,875)
Issuance of Series 1998-A1 preferred
stock for cash - - 16 16 399,984 -
Issuance of common stock in exchange
for services 68,750 6,875 - - 20,625 -
Issuance of common stock for warrants
exercised 11,751 1,175 - - 12,574 -
Issuance of common stock in exchange
for settlement of debt 1,000,000 100,000 - - 900,000 -
Issuance of Series 1999-C preferred
stock for cash - - 44 44 1,099,950 -
Issuance of Series 1999-D1 preferred
stock for cash redemption of 1998-A1
and cancellation of warrants
Series 1998-A1 - - (84) (84) (11,549,916) -
Series 1999-D1 - - 720 720 17,999,280 -
Series A and B warrants - - - - (2,481,251) -
Issuance of Series 1999-E Preferred
stock for Redemption of Series Q
Series Q - $ - $ (32) $ (32) $(2,399,968) $ -
Series 1999-E - - 96 96 2,399,904 -
Issuance of warrants with sale of
subsidiaries - - - - - 200,000
Net loss - - - - - (6,297,353)
---------- ---------- -------- ---------- ----------- -------------
Balances - June 30, 1999 15,013,150 $1,501,315 140,863 $140,863 $49,128,729 $ (42,433,929)
========== ========== ======== ========== =========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities
Net loss $ (6,297,353) $(17,418,141) $ (7,509,040)
Adjustments to reconcile net loss
to cash and cash equivalents
used in operating activities
Loss on sale of assets 82,800 - 1,200
Depreciation and amortization 3,124,272 3,168,332 690,504
Income tax benefit - - (463,035)
Gain on extinguishment of debt - - (789,426)
Provision for bad debt - (150,583) 375,000
Gain on sale of subsidiaries (1,660,217) - -
Gain on sale of marketable
securities - (29,015) -
Provision for inventory obsolescence - 944,753 255,115
Write-down of software development costs - 3,519,584 -
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions
Trade accounts receivable 185,358 (270,422) 28,445
Inventories 141,769 (1,110,798) 312,113
Prepaid expenses (13,574) 1,752,995 (1,825,081)
Other assets - 20,835 47,323
Accounts payable and accrued
liabilities (791,160) 3,282,626 1,606,388
------------ ------------ ------------
Cash and cash equivalents
used in operating
activities (5,228,105) (6,289,834) (7,270,494)
Cash flows from investing activities
Purchase of property and equipment (126,198) (1,287,459) (2,100,359)
Investment in joint venture - - (354,000)
Additions to software development costs (414,186) (3,218,943) (3,649,748)
Licenses - (13,920) (1,113,867)
Sale of marketable securities - 311,157 (282,142)
Proceeds from sale of land 250,000 - -
Collections of note receivable 200,555 626,785 28,049
Issuance of note receivable - (350,000) (375,000)
------------ ------------ ------------
Cash and cash equivalents
used in investing
activities (89,829) (3,932,380) (7,847,067)
<PAGE>
uniView Technologies Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended June 30,
1999 1998 1997
------------ ------------ ------------
Cash flows from financing activities
Receipts under borrowing
arrangements $ - $ - $ 1,000,000
Proceeds from line of credit 4,540,057 - -
Principal payments on line of credit (4,747,652) - -
Proceeds from long term debt 2,148,762 2,500,000 122,062
Principal payments of long-term debt (499,415) (413,888) (642,940)
Principal payments of capital lease
obligations (102,748) (24,256) (145,805)
Dividends paid (1,875) (5,000) (40,446)
Proceeds from exercise of stock warrants 89,731 - -
Preferred and common stock issued
for cash 6,018,750 9,650,000 8,296,105
Redemption of preferred stock for cash - - (1,173,050)
Cash received for common stock issued
in prior year - - 4,351,500
------------ ------------ ------------
Cash and cash equivalents
provided by financing
activities 7,445,610 11,706,856 11,767,426
Net increase (decrease) in cash
and cash equivalents 2,127,676 1,484,642 (3,350,135)
Cash and cash equivalents,
beginning of year 2,284,988 800,346 4,150,481
------------ ------------ ------------
Cash and cash equivalents,
ending of year $ 4,412,664 $ 2,284,988 $ 800,436
============ ============ ============
Supplemental information
Cash paid for:
Interest $ 17,500 $ 64,427 $ 64,231
Income taxes $ - $ - $ -
See Note O for supplemental schedule of non-cash investing and financing
activities.
The accompanying notes are an integral part of these statements.
<PAGE>
uniView Technologies Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
uniView Technologies Corporation and subsidiaries (the Company),
previously known as Curtis Mathes Holding Corporation, develops and
implements customizable computer and network-related solutions for a
variety of niche markets. The Company's convergence technology
provides network services to both business and education-based clients.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the accompanying notes. Actual
results could differ from those estimates.
Cash Equivalents
All highly liquid debt investments with an original maturity of three
months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of average cost or market.
Inventories consist of computer parts and peripherals to be used in
network systems and products.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three to five
years. Maintenance and repairs are expensed as incurred. Leased
equipment under capital lease obligations is depreciated over the life
of the contract using the straight-line method.
Accounting for Impairment of Long-Lived Assets
The Company evaluates long-lived assets and intangibles held and used
for impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. Impairment is
recognized when the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of such assets.
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Software Development Costs
The Company capitalizes software development costs incurred from the
time technological feasibility of the software is established until the
software is ready for use in its products. Research and development
costs related to software development are expensed as incurred. The
capitalized costs relate to software which will become an integral part
of the Company's revenue-producing products and is amortized in
relation to expected revenues from the product or a maximum of three
years, whichever is greater. The carrying value of software
development costs is regularly reviewed by the Company, and a loss is
recognized when the net realizable value by product falls below the
unamortized cost.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, notes receivable and debt. The fair value of all
instruments other than debt approximates the recorded amounts because
of the liquidity and short term nature of these items. It is not
practicable to estimate the fair value of the Company's debt as they
are unique instruments for which there is no public market.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees using
the intrinsic value method. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
Revenue Recognition
The Company recognizes service revenue as the services are provided.
Equipment and product sales are recognized at the time of delivery and
customer acceptance.
Advertising Costs
Advertising costs are charged to operations when the advertising first
takes place. Advertising costs for the years ended June 30, 1999, 1998
and 1997 were $189,226, $1,399,362, and $1,981,172, respectively.
Loss Per Share
Basic loss per common share based on the weighted average number of
common shares outstanding. Diluted loss per share is computed based on
the weighted average number of shares outstanding, plus the number of
additional common shares that would have been outstanding if dilutive
potential common shares had been issued. In all years presented, all
potential common shares were anti-dilutive.
Reclassifications
Certain reclassifications of the 1998 and 1997 financial statements and
related notes have been made to conform with the 1999 presentation.
<PAGE>
NOTE B - GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company
incurred net losses from continuing operations of $6,297,353,
$17,148,141 and $8,298,466 during the years ended June 30, 1999, 1998
and 1997, respectively.
For the last several years, the Company has been developing its
business plan with a focus in offering the technical expertise of its
experienced and knowledgeable staff to customers wishing to increase
business productivity by maximizing the benefits of their information
technology. The Company's product offerings include providing
consulting services to niche markets, internet service provider
services, technology products through its set-top box, and the sale of
the Curtis Mathes trademark. Through the Company's acquisition of
Network America, Inc. in 1998 and the addition of its advanced system
group, revenues increased sharply during 1999. However, the Company's
operating losses continued. The Company is planning to continue the
increase in revenue growth coupled with a reduction in general and
administrative expenses to reach profitability.
For the last three years, the Company used significant amounts of cash
from operations and despite the negative cash flows from operations,
the Company was able to secure financing to support itself. The
Company's ability to continue as a going concern is dependent on its
ability to continue to obtain the necessary operating funds until
operations begin to generate sufficient cash flows to meet the needs of
the Company.
The financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or
liabilities which may result from the inability of the Company to
continue as a going concern.
NOTE C - BUSINESS COMBINATIONS AND DIVESTITURES
Acquisitions
Effective June 12, 1998, the Company acquired 100 percent of the issued
and outstanding capital stock of Video Management, Inc. (VMI), which
owned 100 percent of the issued and outstanding common stock of Network
America, Inc. (NWA), an Oklahoma corporation, and CompuNet Support
Systems, Inc. (CNSS), a Texas corporation. The purchase price of
$1,600,000 consisted of 800,000 shares of the Company's common stock
valued at $2.00 per share. NWA and CNSS provide implementation of
local area networks, network hardware design, consulting and software
designed systems and customized hardware, personal computer and network
systems primarily in the Southwestern United States. Goodwill from
this transaction is being amortized over fifteen years on a straight-
line basis.
On May 15, 1998, an individual, filed an involuntary petition in
bankruptcy against the Company that previously that owned NWA and CNSS
before VMI (Previous Owner) requesting that an order for relief be
entered against that Previous Owner under Chapter 7 of the United
States Bankruptcy Code. Petitioner alleged in his petition that the
Previous Owner was indebted to him, that the Previous Owner was in
default on the obligation owed to him and that "upon information and
<PAGE>
NOTE C - BUSINESS COMBINATIONS AND DIVESTITURES - Continued
belief, the Previous Owner is generally not paying its debts that are
not subject to bona fide dispute as they become due." The Previous
Owner filed a motion to dismiss the petition, alleging the petitioner
does not satisfy the necessary requirements and has vigorously
contested the proceeding.
The relevance to the Company of this proceeding is that it an order of
relief is entered by the court, and if certain other conditions are
satisfied, the acquisition of NWA and CNSS by VMI could be reviewed by
the Court to determine whether a preferential or fraudulent transfer of
those assets had occurred under the bankruptcy code. The Previous
Owner and VMI are both cognizant that this proceeding could affect
certain interests of the Company in the future. VMI and its
shareholders have been very cooperative with the Company in ensuring
that these issues are resolved.
Management believes that the proceeding will have no material adverse
effect upon the Company. However, as with any action of this type, the
timing and degree of any effort upon the Company are uncertain and
there can be no assurance that the proceeding will not have an adverse
impact on the Company in the future. The action is currently pending
and the Previous Owner's Motion to Dismiss and Petitioner's application
for an order for relief is currently set for hearing in October 1998 in
the United States Bankruptcy Court.
Effective May 1998, the Company acquired 100 percent of the issued and
outstanding capital stock of Corporate Network Solutions, LLC (CNS), a
Texas limited liability company. In consideration of the sale and
transfer of the units of ownership of CNS, the Company paid $50,000 in
cash and agreed to pay $150,000 over a ten-month period under a
noninterest-bearing note payable. Further, the Company agreed to
continue the payment of capital equipment leases valued at
approximately $121,000. This transaction has been accounted for as a
purchase and the results of operations have been included from the date
of purchase. Resulting goodwill attributable to this transaction was
$174,106 which was amortized fully during fiscal 1998.
All acquisitions have been accounted for as purchases and the
operations of the purchased companies have been included in the
Company's statement of operations since their date of acquisition.
Divestitures
In October, 1998, the Company completed the sale of the stock of two of
its wholly-owned subsidiaries, uniView Marketing Corporation (UMC) and
CNSS. The consideration for the transaction was the assumption of the
net liabilities of the subsidiaries and warrants to purchase 500,000
shares of stock of the Company at $.50 per share. The warrants expire
in three years and a gain of $1.66 million was recognized on the
transaction.
<PAGE>
NOTE C - BUSINESS COMBINATIONS AND DIVESTITURES - Continued
The unaudited pro forma information set forth below assumes the
acquisition of NWA had occurred at the beginning of 1998. The
information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would
have been achieved had the acquisition been consummated at that time.
For the year ended June 30, 1998, the information is as follows:
Revenues $ 12,431,016
Loss from operations $(17,462,011)
Net loss $(17,414,874)
Loss per common share $(3.37)
NOTE D - INVENTORIES
Inventories at June 30, 1999 and 1998 consist of the following:
1999 1998
-------- ----------
Computer parts and peripherals
and products for resale $436,583 $1,273,426
Less allowance for excess and
obsolete inventory - (330,378)
-------- ----------
$436,583 $ 943,048
======== ==========
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 and 1998 consist of the
following:
1999 1998
---------- ----------
Land $ - $ 646,500
Equipment 4,537,767 4,609,748
Vehicles 170,998 62,757
Furniture and fixtures 83,611 274,557
Leasehold improvements 89,025 176,801
Computer software 174,768 61,554
---------- ----------
5,056,169 5,831,917
Less accumulated depreciation
and amortization (3,745,962) (2,526,468)
---------- ----------
$1,310,207 $3,305,449
========== ==========
Equipment under capital leases included above at June 30, 1999, and
1998 amounted to $86,825 and $528,178, respectively, and the related
accumulated amortization amounted to $8,682 and $382,705, respectively.
Depreciation expense for the three years in the period ending June 30,
1999 totaled $1,417,760, $1,296,082, and $437,448, respectively.
<PAGE>
NOTE F - TRADEMARK
The Company purchased the Curtis Mathes Corporation in 1994 and has
exclusive rights to the Curtis Mathes name, subject to certain
sublicensing arrangements. The trademark is amortized on a straight-
line basis over 20 years and was $244,238 for years ended June 30,
1999, 1998 and 1997.
NOTE G - GOODWILL
Goodwill totaling $1,420,333 from 1998 acquisitions is being amortized
over its estimated useful life of fifteen years. Amortization expense
for 1999 was $102,425 and $16,921 for 1998.
NOTE H - LINE OF CREDIT
During 1999, the Company's subsidiary, Network America, Inc. obtained a
$2.15 million credit facility bearing interest at prime (7.75% at June
30, 1999) plus 2.25% with a finance company collateralized by accounts
receivable and inventories. The outstanding balance at June 30, 1999
was $710,858 and interest is payable monthly. This facility contains
various financial covenants, including among other things, minimum net
worth, maintenance of various fixed charge ratios and maximum allowable
indebtedness to net worth, all of which Network America is currently in
compliance.
<PAGE>
NOTE I - LONG-TERM DEBT
Long-term debt at June 30, 1999 and 1998 consists of the following:
1999 1998
----------- ----------
Convertible note payable to a finance company
collateralized by a blanket security agreement
with interest at 18%. Principal and interest
is due March 31, 2002. Amounts are convertible
into common stock at $1.00 per share. During
1999, $1 million of this note was converted to
common stock. $ 774,648 $1,525,886
Various notes payable to financial institutions
and third parties with interest rates at 6%
to 14% and maturities at demand through to
March 1999 collateralized by specific land,
inventory and receivables. - 1,929,896
Convertible notes payable to various parties with
interest at 6%, payable quarterly and principal
due March 2002. The notes are convertible
at $.625 per share. 1,800,000 -
Noninterest-bearing note payable with principal
payments of $15,000 payable monthly,
collateralized by the outstanding common stock
of subsidiary. 90,000 150,000
Uncollateralized notes payable of a subsidiary
to third parties with interest at 9% to 12%,
with scheduled maturities from December 31,1999 to
February 14, 2000. 176,447 -
Demand note to an individual with interest at 6%,
payable monthly. 100,000 -
Miscellaneous notes payable. 15,369 54,442
----------- ----------
2,956,464 3,660,224
Less current portion (366,447) (3,644,729)
----------- ----------
$ 2,590,017 $ 15,495
=========== ==========
The following is a schedule of maturities of long-term debt at June 30,
1999:
2000 $ 366,447
2001 15,000
2002 2,575,017
-----------
$2,956,464
===========
The weighted average interest rate of borrowings outstanding at June
30, 1999 is 10%.
<PAGE>
NOTE J - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases equipment and facilities under long-term leases.
The following is a schedule future minimum lease payments at June 30,
1999:
Operating Capital
leases leases
--------- -----------
2000 $ 214,445 $ 70,519
2001 67,500 51,443
2002 5,625 41,389
2003 - 14,995
2004 - 12,961
--------- -----------
$ 287,570 191,307
Less amount representing interest (35,419)
-----------
Present value of net minimum lease payments
including current maturities of $55,168 $155,888
===========
Rental expense under operating leases for the years ended June 30,
1999, 1998, and 1997 was approximately $410,809, $698,032, and
$476,000, respectively.
Litigation
Subsequent to June 30, 1999, the Company and a vendor agreed to settle
a legal action. In return for a prepayment of $750,000 and 250,000
shares of its common stock whose market value at closing date was $1.84
per share, the Company will receive two years of television listing
services from the vendor. The agreement requires an additional annual
fee of $70,000 and a nominal fee per customer.
The Company is routinely a party to ordinary litigation incidental to
its business, as well as to other litigation of a nonmaterial nature,
the outcome of which management does not expect, individually or in the
aggregate, to have a material adverse effect on the financial condition
or results of operations of the Company in excess of the amount accrued
for such purposes at June 30, 1999.
Warranty Provision
Pursuant to their exit from the consumer electronics market in 1996,
the Company recorded a reserve for future warranty obligations. Since
that time, the Company has outsourced repairs and parts servicing for
all warranty claims. These obligations end in fiscal year 2000 and the
remaining warranty provision of $166,310 is recorded in current
liabilities.
NOTE K - CONCENTRATIONS OF CREDIT RISK
During 1999, no single customer represented more than 10% of sales
compared to 12% for one customer and 11% for another customer in 1998.
At June 30, 1999, one customer represented 17% of trade accounts
receivable and at June 30, 1998, two customers represented 36% of trade
accounts receivable.
<PAGE>
NOTE L - STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 1,000,000 shares authorized of $1.00 par value
cumulative preferred stock. The Company's articles of incorporation
allow the board of directors to determine the number of shares and
determine the relative rights and preferences of any series of
preferred stock to be issued.
At June 30, 1998, the Company has issued and outstanding 140,000 Series
A, 3 Series H, 60 Series Q and 80 Series 1998-A1 preferred shares. At
June 30, 1999, the Company has issued and outstanding 140,000 Series A,
3 Series H, 44 Series 1999-C, 720 Series 1999D-1, and 96 Series 1999-E
preferred shares. Series A preferred shares are non-convertible,
redeemable at the Company's option and carry cumulative dividends of
6%. Series H preferred shares are convertible based upon conversion
ratios as determined in the Certificate of Designation, redeemable at
the Company's option and carry cumulative dividends of 5%. Series 1999-
C preferred shares are convertible based upon conversion ratios as
determined in the Certificate of Designation, redeemable at the
Company's option and carry cumulative dividends of 6%. Series 1999-D1
preferred shares which are convertible based upon conversion ratios as
determined in the Certificate of Designation, redeemable at the
Company's option and carry cumulative dividends of 5%. Series 1999-E
preferred shares which are convertible based upon conversion ratios as
determined in the Certificate of Designation, redeemable at the
Company's option and carry cumulative dividends of 3%.
Dividends of $1,875, $5,000 and $40,446 on preferred stock were paid in
cash during the three years in the period ended June 30, 1999. Non-
cash dividends of $11,261 were paid during the year ended June 30, 1999
through the issuance of additional preferred stock. Noncash dividends
of $374,963 were paid during the year ended June 30, 1998. Cumulative
dividends in arrears as of June 30, 1999 and 1998 amounted to $130,645
and $24,340, respectively.
Common Stock
Effective April 24, 1998, the Board of Directors amended the par value
of the common stock from $0.01 to $0.10 per share and 10:1 reverse
stock split. The authorized number of shares was maintained at
80,000,000. All references throughout the financial statements to
numbers of shares and per share amounts have been restated.
Stock Options
The Company has periodically granted stock options for employment and
outside services received during the years reported. These options are
treated as fixed, compensatory awards.
The Company grants non-compensatory stock options to key employees and
directors at market value at the date of grant. These options
generally vest immediately; however, during 1998, options covering
90,000 shares vest over 1.5 years and during 1997, 100,000 options
granted to key employees and directors vest over four years.
<PAGE>
NOTE L - STOCKHOLDERS' EQUITY - Continued
During 1999, 1998 and 1997, options issued with exercise prices less
than market value on the grant date were immaterial and, accordingly,
no compensation expense has been recognized in these years. Had
compensation cost been determined on the basis of fair value pursuant
to FASB Statement No. 123, net loss and net loss per share for 1999,
1998 and 1997 would have been increased as follows:
1999 1998 1997
----------- ------------ -----------
Net loss
As reported $(6,297,353) $(17,418,141) $(7,509,040)
Pro forma (6,414,539) (17,483,423) (7,682,011)
Loss per share
As reported (.52) (3.37) (2.33)
Pro forma (.52) (3.38) (2.38)
The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1999 1998 1997
----------- ------------ -----------
Expected volatility 175% 79% 60%
Risk-free interest rate 5.5% 6% 6%
Expected lives 3 years .5 to 2.5 years 4.75 years
Dividend yield - - -
Additional information with respect to all options outstanding at June
30, 1999, and changes for the three years then ended was as follows:
Above Equal to Below
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average average average
Exercise exercise exercise
Options price Options price Options price Options
------- -------- ------- -------- ------- ----- -------
Outstanding at
July 1, 1996 20,235 $ 32.20 - $ - 1,800 $5.00 22,035
Granted - - - - 105,350 9.40 105,350
Exercised - - - - (7,150) 8.30 (7,150)
------- -------- ------- -------- ------- ----- -------
Outstanding at
June 30, 1997 20,235 32.20 - - 100,000 9.40 120,235
Price adjustment of
Variable options - - - - - (8.30) -
Granted 2,500 8.75 590,000 2.47 10,000 1.54 602,500
Forfeited/expired(5,700) 30.00 - - - - (5,700)
------- -------- ------- -------- ------- ----- -------
<PAGE>
NOTE L - STOCKHOLDERS' EQUITY - Continued
Above Equal to Below
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average average average
Exercise exercise exercise
Options price Options price Options price Options
------- -------- ------- -------- ------- ----- -------
Outstanding at
June 30, 1998 17,035 $ 14.64 590,000 $ 2.47 110,000 $3.03 717,035
Granted - - 151,251 3.22 - - 151,251
Exercised - - - - (11,176) 1.17 (11,176)
Forfeited (17,035) 14.64 (70,000) 2.30 (35,465) 1.64 (122,500)
------- -------- ------- -------- ------- ----- -------
Outstanding at
June 30, 1999 - $ - 671,251 $ 2.99 63,359 $4.14 734,610
======= ======== ======= ======== ====== ===== =======
Weighted average fair value per share of options granted for 1999 were
$3.10. For 1998, options granted above, equal to, and below market
value had a weighted average grant date fair value per share of $.19,
$.87 and nil, respectively, and for 1997, options granted below market
value had a weighted average fair value per share for options granted
of $.61.
Information about stock options outstanding at June 30, 1999 is
summarized as follows:
Options outstanding Exercisable
----------------------------- -----------------------
Weighted
average Weighted Weighted
remaining average average
Range of contractual exercise Number exercise
exercise prices Number life price exercisable price
------- ----------- ------ ----------- --------
$1.10 to $1.83 121,250 3.9 years $ 1.70 121,250 $ 1.70
$2.30 to $2.50 557,500 2.1 years 2.41 337,500 2.41
$9.40 52,500 2.8 years 2.47 52,500 2.47
$22.50 to $45.00 3,360 1.8 years 9.40 3,360 9.40
-------
734,610 $ 2.97
======= ======
Common stock warrants issued and outstanding at June 30, 1999 are
summarized as follows:
Weighted average
Range of exercise price Number remaining life
--------- ----------------
$.40 to $.625 1,524,000 1.17 years
$1.00 to $3.00 429,250 2.76 years
$25.00 to $39.40 155,330 0.19 years
---------
2,108,580
=========
<PAGE>
NOTE M - INCOME TAXES
A reconciliation of income tax expense (benefit) computed by applying
the U.S. federal tax rates to loss from continuing operations before
income taxes and extraordinary items and recorded income tax expense
(benefit) is as follows:
1999 1998 1997
----------- ------------ -----------
Tax expense (benefit)
at statutory rate $(2,141,099) $ (5,922,168) $(2,978,911)
State income taxes,
net of federal income
tax effect (66,723) (506,109) (260,216)
Non-deductible expenses 138,527 99,867 96,687
Change in estimate for
prior years - 355,846 1,213,485
Change in valuation
allowance 2,069,295 5,972,564 1,465,920
----------- ------------ -----------
$ - $ - $ (463,035)
=========== ============ ===========
The components of the Company's deferred income taxes at June 30, 1999
and 1998 are as follows:
1999 1998
-------------- --------------
Deferred tax liabilities
Fixed assets $ (34,812) $ (812)
Software development costs (434,102) (968,982)
-------------- --------------
(468,914) (969,794)
Deferred tax assets
Inventory reserve 5,100 122,141
Bad debt reserve 26,013 18,275
Warranty 56,545 153,151
Accrued liabilities 136,000 110,910
Deferred revenue 8,972 25,838
Goodwill - 63,798
Other - 159,906
Net operating loss carryforwards 15,003,536 13,013,732
-------------- --------------
15,236,166 13,667,751
-------------- --------------
Net Deferred Tax Asset 14,767,252 12,697,957
Valuation allowance (14,767,252) (12,697,957)
-------------- --------------
$ - $ -
============== ==============
At June 30, 1999, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $43,735,561 which may be
used to offset future taxable income, subject to provisions of the
Internal Revenue Code, and will expire in various amounts in the years
2008 through 2014 if not utilized.
<PAGE>
NOTE N - PENSION AND OTHER BENEFIT PROGRAMS
Prior to a subsidiary's bankruptcy filing in 1992, the subsidiary had a
defined benefit plan, which covered substantially all full-time
employees. The following table sets forth the funded status of the
Company's defined pension plan:
1999 1998 1997
---------- ---------- ----------
Actuarial present value of
benefit obligations
------------------------------
Accumulated benefit obligation $ 773,950 $ 712,835 $ 708,186
Projected benefit obligation 773,950 712,835 708,186
Plan assets at fair value 639,202 615,352 618,503
---------- ---------- ----------
Excess projected benefit
obligation 134,748 97,483 89,683
Increase due to an assumption change - 57,151 -
---------- ---------- ----------
Net pension liability $ 134,748 $ 154,634 $ 89,683
========== ========== ==========
Net pension cost includes the
following components
-----------------------------
Interest on unfunded liability $ 10,826 $ 6,952 $ 21,227
Actuarial gain (loss) 11,425 (848) (3,360)
---------- ---------- ----------
Net pension cost $ 22,251 $ 6,104 $ 17,867
========== ========== ==========
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation for 1998
and 1997 was 7.00% and 7.00%, respectively. The weighted average
assumed rate of return on pension plan assets for 1998 and 1997 was
7.00% and 7.00%, respectively.
NOTE O - NON-CASH INVESTING AND FINANCING ACTIVITIES
1999 1998 1997
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for
settlement of cash received under
borrowing arrangements, including
$78,356 in accrued interest $ - $ - $1,078,356
========== ========== ==========
Issuance of common stock for
note payable $1,000,000 $ 724,114 $ -
========== ========== ==========
Issuance of common stock for fee
and services $ 27,500 $ - $ -
========== ========== ==========
<PAGE>
NOTE O - NON-CASH INVESTING AND FINANCING ACTIVITIES - Continued
1999 1998 1997
---------- ---------- ----------
Stock issued in connection with a
pooling of interests $ - $ 803,000 $ -
========== ========== ==========
Issuance of common stock for land $ - $ 280,000 $ -
========== ========== ==========
Issuance of common stock in
satisfaction of accounts
payable and accrued liabilities $ - $ 533,093 $ -
========== ========== ==========
Conversion of note receivable
including accrued interest for
stock of VMI $ - $ 815,879 $ -
========== ========== ==========
Purchase of subsidiary stock with
note payable $ - $ 200,000 $ -
========== ========== ==========
Issuance of common stock for dividends $ 11,261 $ 374,963 $ -
========== ========== ==========
Warrants issued for services $ - $ 432,530 $ -
========== ========== ==========
Sale of subsidiaries in consideration
of sub-licenses $1,660,217 $ - $ -
========== ========== ==========
Sale of land for note payable $ 250,000 $ - $ -
========== ========== ==========
Redemption of Series 1998-A1
Preferred Stock for Series 1999-D1
and cancellation of warrants $14,532,806 $ - $ -
========== ========== ==========
Redemption of Series Q Preferred Stock
for Series 1999-E $2,400,000 $ - $ -
========== ========== ==========
NOTE P - RELATED PARTY TRANSACTIONS
During 1998, the Company purchased the remaining interest in a
partnership that officers and related parties purchased during 1997.
The Company issued 142,359 shares of common stock in the transaction.
The asset underlying the partnership was classified as land. During
1999, the Company incurred a loss of $82,800 on the sale of this land.
In 1998, a trust in which the President of the Company holds a
beneficial interest, loaned the Company $250,000 under a note which
bore interest at 14%. In April 1998, the Company exchanged 147,725
shares of common stock for settlement of the outstanding principal and
interest.
<PAGE>
NOTE Q - BUSINESS SEGMENT INFORMATION
During 1997 the Company was engaged primarily in the distribution of
consumer electronic products. During 1999 and 1998, it was primarily
engaged in computer sales and services. The following tables set forth
certain information with respect to the years ended June 30.
1999 1998 1997
------------ ----------- ----------
Net revenues
Product sales $ 10,160,563 $ 2,356,065 $ -
Services 1,325,495 - -
Consumer electronics - 131,148 2,503,512
----------- ----------- ----------
$11,486,058 $ 2,487,213 $2,503,512
=========== =========== ==========
Operating loss
Product sales $(2,081,390) $(2,541,457) $ -
Services (460,314) - -
Corporate (4,944,321) (5,514,393) (1,982,294)
Consumer electronics - (9,055,366) (6,229,880)
----------- ----------- ----------
Total operating loss (7,486,025) (17,111,216) (8,212,174)
Less interest expense (471,545) (306,925) (86,292)
Gain on sale of subsidiaries 1,660,217 - -
----------- ----------- ----------
Loss from continuing operations $(6,297,353) $(17,418,141) $(8,298,466)
=========== =========== ==========
Identifiable assets
Computer products and service $ 9,516,629 $ 9,133,287 $ -
Corporate 4,564,139 7,013,852 5,947,641
Consumer electronics - 1,581,523 9,527,112
----------- ----------- ----------
$14,080,768 $17,728,662 $15,474,753
=========== =========== ==========
Depreciation, amortization
and write-down
Computer products and service $ 2,769,607 $ 5,539,401 $ -
Corporate 354,665 271,335 189,194
Consumer electronics - 741,447 501,310
----------- ----------- -----------
$ 3,124,272 $ 6,552,183 $ 690,504
=========== =========== ===========
Capital expenditures
Computer products and service $ 99,951 $ 1,287,459 $ -
Consumer electronics - - 1,689,685
Corporate 26,247 - 410,674
----------- ----------- ----------
$ 126,198 $ 1,287,459 $ 2,100,359
=========== =========== ==========
<PAGE>
uniView Technologies Corporation and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1999, 1998 and 1997
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of year expenses accounts Deductions of year
- ------------- ---------- ---------- -------- ---------- --------
Year ended June 30, 1997
Inventory obsolescence
reserve $ - $ 255,115 $ - $ - $255,115
Note receivable reserve 613,114 - 375,000 (613,114) 375,000
Year ended June 30, 1998
Inventory obsolescence
reserve 255,115 75,263 - - 330,378
Note receivable reserve 375,000 224,417 - (375,000) 224,417
Allowance for doubtful
accounts - 20,017 - - 20,017
Year ended June 30, 1999
Inventory obsolescence
reserve 330,378 - - (330,378) -
Allowance for doubtful
accounts 20,017 256,493 - (200,000) 76,510
<PAGE>
UNIVIEW TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibits Page
2 Stock Purchase Agreement dated as of October 31, 1998 between
the Company and W. I. Technology Holding Company Inc.
concerning the sale of subsidiaries uniView Marketing
Corporation and CompuNet Support Systems, Inc. (filed as
Exhibit "2" to the Company's Current Report on Form 8-K dated
October 31, 1998 and incorporated herein by reference.) N/A
3(i) Articles of Incorporation of the Company, as amended, defining
the rights of security holders (filed as Exhibit "4.1" to the
Company's Registration Statement on Form S-3 originally filed
with the Commission on May 13, 1998 and incorporated herein by
reference.) N/A
3(ii)* Bylaws of the Company, as amended, defining the rights of
security holders. 63
4.1 Form of Common Stock Certificate of the Company (filed as
Exhibit "4.2" to the Company's annual report on Form 10-K for
the fiscal year ended June 30, 1994 and incorporated herein by
reference.) N/A
4.2 Series A Preferred Stock terms and conditions (filed as Exhibit
"4.3" to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by
reference.) N/A
4.3 Series H Preferred Stock terms and conditions (filed as Exhibit
"4.4" to the Company's Registration Statement on Form S-3
originally filed with the Commission on June 20, 1996 and
incorporated herein by reference.) N/A
4.4 Series Q Preferred Stock terms and conditions (filed as Exhibit
"4.6" to the Company's Current Report on Form 8-K dated June
12, 1998 and incorporated herein by reference.) N/A
4.5 Form of warrant issued in connection with the J.P. Carey
Agreement (filed as Exhibit "4.8" to the Company's Registration
Statement on Form S-3 filed with the Commission on July 20,
1998 and incorporated herein by reference.) N/A
4.6 Series 1998-A1 Preferred Stock terms and conditions (filed as
Exhibit "4.5" to the Company's Registration Statement on Form
S-3 filed with the Commission on July 20, 1998 and incorporated
herein by reference.) N/A
4.7 Form of warrant issued in connection with Series 1998-A1
Preferred Stock (filed as Exhibit "4.7" to the Company's
Registration Statement on Form S-3 filed with the Commission on
July 20, 1998 and incorporated herein by reference.)N/A
<PAGE>
4.8 First Addendum to Series 1998-A1 Preferred Stock terms and
conditions (filed as Exhibit "4.8" to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998 and
incorporated herein by reference.) N/A
4.9 Form of Series 1999-B Preferred Stock Certificate of De
signation (filed as Exhibit "4.7" to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 and
incorporated herein by reference.) N/A
4.10 Form of warrants issued in connection with Series 1999-B
Preferred Stock (filed as Exhibit "4.8" to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 and incorporated herein by reference.) N/A
4.11 Series 1999-C Preferred Stock terms and conditions (filed as
Exhibit "4.5" to the Company's Registration Statement on Form
S-3 filed with the Commission on June 28, 1999 and incorporated
herein by reference.) N/A
4.12 Series 1999-D1 Preferred Stock terms and conditions (filed as
Exhibit "4.6" to the Company's Registration Statement on Form
S-3 filed with the Commission on June 28, 1998 and incorporated
herein by reference.) N/A
4.13 Series 1999-E Preferred Stock terms and conditions (filed as
Exhibit "4.9" to the Company's Registration Statement on Form
S-3 filed with the Commission on June 28, 1998 and incorporated
herein by reference.) N/A
4.14 Form of warrant issued in connection with Founder's Equity fee
agreement and Associates Funding Group, Inc. (filed as Exhibit
"4.7" to the Company's Registration Statement on Form S-3 filed
with the Commission on June 28, 1999 and incorporated herein by
reference.) N/A
4.15 Form of warrant issued in connection with Nations Investment
Corp., Ltd. (filed as Exhibit "4.8" to the Company's
Registration Statement on Form S-3 filed with the Commission on
June 28, 1999 and incorporated herein by reference.) N/A
4.16 Form of Securities Purchase Agreement for 1999.1 and 1999.2
Convertible Debenture (filed as Exhibit "4.9" to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1998 and incorporated herein by reference.) N/A
4.17* Extension Agreement for Note and Security Agreement with Geneva
Reinsurance Company, Ltd. dated March 16, 1999 allowing
conversion of the remaining principal balance of the note into
common stock. 87
10.1 Loan and Security Agreement between Network America, Inc. and
FINOVA Capital Corporation dated October 30, 1998 (filed as
Exhibit "10.1" to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998 and incorporated herein
by reference.) N/A
<PAGE>
10.2 Lease Agreement by and between Terry N. Worrell, Sharon C.
Worrell, and Kay Y. Moran, Trustee, as Landlord, and Curtis
Mathes Corporation, as Tenant, dated October 27, 1994
pertaining to the property utilized as the Corporate
headquarters (filed as Exhibit "10.9" to the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1997 and
incorporated herein by reference.) N/A
10.3** Employment Contract with Mr. Custer dated as of April 7, 1997
(filed as Exhibit "10.26" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1997 and
incorporated herein by reference.) N/A
10.4** Employment Contract with Mr. Robinson dated as of April 7, 1997
(filed as Exhibit "10.27" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1997 and
incorporated herein by reference.) N/A
10.5** Stock Option Agreement with Mr. Appel dated as of April 7, 1997
(filed as Exhibit "10.28" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1997 and
incorporated herein by reference.) N/A
10.6** Stock Option Agreement with Mr. Warren dated as of April 7,
1997 (filed as Exhibit "10.29" to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1997 and
incorporated herein by reference.) N/A
10.7* Database Service Agreement between TVData Technologies, L.P.
and the Company dated August 1, 1999. 88
16 Letter from King Griffin & Adamson, P.C. regarding change in
certifying accountant (filed as Exhibit "16" to our Current
Report on Form 8-K dated December 1, 1998 and incorporated
herein by reference.) N/A
21* Subsidiaries of the Company. 100
27* Financial Data Schedule (for EDGAR filing purposes only.) 101
_______________
* Filed herewith.
** Management contract or compensation plan or arrangement required to
be filed as a exhibit pursuant to Item 14 (c).
<PAGE>
BY-LAWS
OF
UNIVIEW TECHNOLOGIES CORPORATION
CONTENTS Page
ARTICLE I: Principal Office
1.1 Principal Office . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II: Shareholders
2.1 Place of Meeting. . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meeting . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meeting . . . . . . . . . . . . . . . . . . . 1
2.4 Notice . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Quorum . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Majority Vote . . . . . . . . . . . . . . . . . . . . 2
2.7 Method of Vote . . . . . . . . . . . . . . . . . . . 2
2.8 Voting by Ballot . . . . . . . . . . . . . . . . . . 3
2.9 Action Without Meeting . . . . . . . . . . . . . . . 3
2.10 Telephone Meetings . . . . . . . . . . . . . . . . . 3
ARTICLE III: Directors
3.1 Management, Number, Qualification, Election And Term. 4
3.2 Vacancies . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Change in Number. . . . . . . . . . . . . . . . . . . 4
3.4 Removal . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Meeting . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 First Meetings. . . . . . . . . . . . . . . . . . . . 4
3.7 Regular Meetings. . . . . . . . . . . . . . . . . . . 5
3.8 Special Meetings. . . . . . . . . . . . . . . . . . . 5
3.9 Attendance. . . . . . . . . . . . . . . . . . . . . . 5
3.10 Majority Vote and Quorum. . . . . . . . . . . . . . . 5
3.11 Committees. . . . . . . . . . . . . . . . . . . . . . 6
3.12 Action Without Meeting. . . . . . . . . . . . . . . . 6
3.13 Compensation. . . . . . . . . . . . . . . . . . . . . 6
3.14 Telephone Meetings. . . . . . . . . . . . . . . . . . 6
ARTICLE IV: Notices
4.1 Method. . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Waiver. . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
ARTICLE V: Officers
5.1 Number, Qualification, Election and Term. . . . . . . 7
5.2 Appointment . . . . . . . . . . . . . . . . . . . . . 7
5.3 Salaries. . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Vacancy . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 Resignation . . . . . . . . . . . . . . . . . . . . . 8
5.6 Chairman of the Board . . . . . . . . . . . . . . . . 8
5.7 President . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Vice President. . . . . . . . . . . . . . . . . . . . 9
5.9 Secretary and Assistant Secretary . . . . . . . . . . 9
5.10 Assistant Secretary's Duties . . . . . . . . . . . . 9
5.11 Treasurer and Assistant Treasurer . . . . . . . . . . 10
5.12 Duties. . . . . . . . . . . . . . . . . . . . . . . . 10
5.13 Performance Bonds . . . . . . . . . . . . . . . . . . 10
5.14 Assistant Treasurer's Duties. . . . . . . . . . . . . 10
ARTICLE VI: Certificates and Shareholders
6.1 Issuance and Payment for Shares . . . . . . . . . . . 10
6.2 Certificates Representing Shares. . . . . . . . . . . 11
6.3 Signatures. . . . . . . . . . . . . . . . . . . . . . 11
6.4 Lost Certificates . . . . . . . . . . . . . . . . . . 11
6.5 Issuance. . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Closing of Transfer Books . . . . . . . . . . . . . . 12
6.7 Registered Shareholders . . . . . . . . . . . . . . . 13
6.8 List of Shareholders. . . . . . . . . . . . . . . . . 13
6.9 Transfer Agents and Registrars. . . . . . . . . . . . 13
6.10 Restrictions on Transfer. . . . . . . . . . . . . . . 14
ARTICLE VII: General Provisions
7.1 Dividends . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Reserve Fund. . . . . . . . . . . . . . . . . . . . . 14
7.3 Checks. . . . . . . . . . . . . . . . . . . . . . . . 14
7.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . 15
7.5 Seal. . . . . . . . . . . . . . . . . . . . . . . . . 15
7.6 Books and Records . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII: Amendments. . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX: Indemnification of Directors and Officers
9.1 General Provision . . . . . . . . . . . . . . . . . . 16
9.2 Exception . . . . . . . . . . . . . . . . . . . . . . 16
9.3 Majority Vote . . . . . . . . . . . . . . . . . . . . 16
9.4 Reasonable Expenses . . . . . . . . . . . . . . . . . 17
9.5 Suit for Indemnification. . . . . . . . . . . . . . . 17
9.6 Court Order . . . . . . . . . . . . . . . . . . . . . 18
9.7 Prerequisite to Reimbursement . . . . . . . . . . . . 18
9.8 Witness Expenses. . . . . . . . . . . . . . . . . . . 18
9.9 Insurance . . . . . . . . . . . . . . . . . . . . . . 19
9.10 Report to Shareholders. . . . . . . . . . . . . . . . 19
ARTICLE X: Interest of Directors, Officers and Shareholders. 19
Amendment to Article X of the By-Laws . . . . . . . . 20
<PAGE>
UNIVIEW TECHNOLOGIES CORPORATION
BY-LAWS
ARTICLE I
OFFICES
1.1 The principal office of the corporation shall be located in Dallas,
Texas.
1.2 The corporation may also have offices at such other places both
within and without the State of Texas as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 Meetings of shareholders for any purpose may be held at such time
and place within or without the State of Texas as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
2.2 The annual meeting of shareholders shall be held annually at such
date and time as shall be designated from time to time by the board of
directors and stated in the notice of meeting.
2.3 Special meetings of the shareholders for any purpose or purposes
may be called by the president and shall be called by the president or
secretary at the request in writing of a majority of the board of
directors or at the request in writing of shareholders owning ten percent
(10%) of all the shares entitled to vote at the meetings. A request for
a special meeting shall state the purpose or purposes of the proposed
meeting, and business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
2.4 Written notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) nor more
than fifty (50) days before the date of the meeting, either personally or
by mail, by or at the direction of the president, the secretary, or the
officer or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting.
2.5 The holders of a majority of the shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise, provided by statute or by the
articles of incorporation. If, however, a quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled
to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting, provided a quorum shall be
present or represented thereat, any business may be transacted which might
have been transacted if the meeting had been held in accordance with the
original notice thereof.
<PAGE>
2.6 If a quorum is present at any meeting, the affirmative vote of
the holders of a majority of the shares entitled to vote on, and that
voted for or against or expressly abstained with respect to, that matter,
present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which a
different vote is required by law or by the articles of incorporation.
2.7 Each outstanding share having voting power shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
A shareholder may vote either in person or by proxy executed in writing by
the shareholder or by his duly authorized attorney-in-fact.
2.8 Unless otherwise provided by the board of directors, no vote on
any question before the shareholders' meeting need be by ballot unless the
Chairman of the meeting shall determine that it shall be by ballot or the
holders of a majority of the shares of stock present in person or by proxy
and entitled to participate in such vote shall so demand. In a vote by
ballot, each ballot shall state the number of shares voted in the name of
the shareholder proxy voting. All votes by ballot at any meeting of
shareholders shall be conducted by two judges (who need not be
shareholders) who shall, except as otherwise provided by law, be
appointed for that purpose by the Chairman of the meeting. The judges
shall decide on the qualifications of votes, count the votes and declare
the results. The order of business at all meetings of shareholders shall
be as determined by the Chairman of the meeting or as may otherwise be
determined by the vote of the holders of the majority of the shares of
stock present in person or represented by proxy and entitled to vote at
the meeting.
2.9 Any action required or which may be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all the
shareholders entitled to vote with respect to the subject matter thereof.
2.10 Subject to the provisions of the Texas Business Corporation Act,
shareholders may participate in and hold a shareholders' meeting by means
of a conference telephone where all persons participating in the meeting
can hear each other and participation by such means shall constitute
presence in person at such meeting.
ARTICLE III
DIRECTORS
3.1 The business and affairs of the corporation shall be managed by
a board of directors. The number of directors which shall constitute
the whole board of directors shall be not less than one (1). Such number
of directors shall from time to time be fixed and determined by the
directors and shall be set forth in the notice of any meeting of
shareholders held for the purpose of electing directors. The directors
shall be elected at the annual meeting of shareholders, except as
provided in Section 3.2 below, and each director elected shall hold
office until his successor shall be elected and qualified. Directors
need not be residents of Texas or shareholders of the corporation.
<PAGE>
3.2 Any vacancy occurring in the board of directors may be filled
by a majority of the remaining directors, if any, though less than a
quorum of the board of directors. If a vacancy occurs in the board of
directors, and no other directors exist to elect someone to fill such
vacancy, such vacancy shall be filled by election at a special meeting
of shareholders. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office.
3.3 The number of directors may be increased or decreased from time to
time as provided in these by-laws, but no decrease shall have the effect
of shortening the term of any incumbent director. Any directorship to be
filled by reason of an increase in the number of directors shall be
filled by election at an annual or special meeting of shareholders.
3.4 Any director may be removed either for or without cause at any
special meeting of shareholders duly called and held for such purpose.
MEETINGS OF THE BOARD OF DIRECTORS
3.5 Meetings of the board of directors, regular or special, may be
held either within or without the State of Texas.
3.6 The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting, and no notice of such meeting shall
be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present. In the event
that the shareholders fail to fix the time and place of such first
meeting, it shall be held without notice immediately following the annual
meeting of shareholders, and at the same place, unless by the unanimous
consent of the directors then elected and serving such time or place
shall be changed.
3.7 Regular meetings of the board of directors may be held upon such
notice, or without notice, and at such time and at such place as shall
from time to time be determined by the board.
3.8 Special meetings of the board of directors may be called by the
chairman of the board of directors or the president and shall be called
by the secretary on the written request of two (2) directors. Notice of
each special meeting of the board of directors shall be given to each
director at least ten (10) days before the date of the meeting.
3.9 Attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends for the express
purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened. Except as may be
otherwise provided by law or by the articles of incorporation or by the
by-laws, neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
<PAGE>
3.10 At all meetings of the board of directors a majority of the
directors shall constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, unless
otherwise specifically provided by law, the articles of incorporation or
the by-laws. If a quorum shall not be present at any meeting of
directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
3.11 The board of directors, by resolution passed by a majority of the
full board, may from time to time designate a member or members of the
board to constitute committees, including an executive committee, which
committees shall in each case consist of one or more directors and shall
have and may exercise such powers as the board may determine and specify
in the respective resolutions appointing them. A majority of all the
members of any such committee may determine its actions and fix the time
and place of its meetings, unless the board of directors shall otherwise
provide. The board of directors shall have power at any time to change
the number, subject as aforesaid, and members of any such committee, to
fill vacancies and to dissolve any such committee.
3.12 Any action required or permitted to be taken at a meeting of the
board of directors or any committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all
the members of the board of directors or committee, as the case may be.
3.13 By resolution of the board of directors, the directors may be
paid their expenses, if any, of attendance at each meeting of the board
of directors and may be paid a fixed sum for attendance at each meeting
of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
3.14 Subject to the provisions of the Texas Business Corporation Act,
directors may participate in and hold a director's or executive committee
meeting by means of a conference telephone where all persons
participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
ARTICLE IV
NOTICES
4.1 Any notice to directors or shareholders shall be in writing and
shall be delivered personally or mailed to the directors or shareholders
at their respective addresses appearing on the books of the corporation.
Notice by mail shall be deemed to be given at the time when the same
shall be deposited in the United States mail, postage prepaid. Notice to
directors may also be given by telegram.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the articles of incorporation or of these by-laws, a
waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
<PAGE>
ARTICLE V
OFFICERS
5.1 The officers of the corporation shall be elected by the board of
directors and shall consist of a president, a vice president, a secretary
and a treasurer. The board of directors may also elect a chairman of the
board, an assistant president, additional vice presidents, and one or
more assistant secretaries and assistant treasurers. Two or more offices
may be held by the same person. Officers of the corporation need not be
a member of the board of directors.
5.2 The board of directors may appoint such other officers and
assistant officers and agents as it shall deem necessary, who shall hold
their offices for such terms and shall have such authority and exercise
such powers and perform such duties as shall be determined from time to
time by the board by resolution not inconsistent with these by-laws.
5.3 The salaries of all officers and agents of the corporation shall
be fixed by the board of directors.
5.4 The officers of the corporation shall hold office until their
successors are elected or appointed and qualified, or until their death
or until their resignation or removal from office. Any officer elected
or appointed by the board of directors may be removed at any time by the
board, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights. Any vacancy
occurring in any office of the corporation by death, resignation, removal
or otherwise shall be filled by the board of directors.
5.5 Any officer may resign at any time by giving written notice to
the board of directors or to the president, vice president or secretary.
Such resignation shall take effect at the time specified therein, and,
unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
THE CHAIRMAN OF THE BOARD
5.6 The chairman of the board, if one be elected, shall preside at
all meetings of the board of directors and shall have such other powers
and duties as may from time to time be prescribed by the board of directors
upon written directions given to him pursuant to resolutions duly adopted
by the board of directors.
THE PRESIDENT
5.7 Unless the board of directors determines otherwise, the president
shall be the chief executive officer of the corporation, shall have
general and active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors are
carried into effect. He shall preside at all meetings of the
shareholders. In the event the chief executive officer is other than the
president, then the president shall be the chief operating officer of the
corporation.
<PAGE>
THE VICE PRESIDENT
5.8 The vice presidents in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the president, perform the duties and have the authority
and exercise the powers of the president. They shall perform such other
duties and have such other authority and powers as the board of directors
may from time to time prescribe or as the president may time to time
delegate.
THE SECRETARY AND ASSISTANT SECRETARIES
5.9 The secretary shall attend all meetings of the board of directors
and all meetings of shareholders and record all of the proceedings of the
meetings of the board of directors and of the shareholders in a minute
book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the
board of directors and shall perform such other duties as may be
prescribed by the board of directors or the president, under whose
supervision he shall be. He shall have custody of a seal of the
corporation if one is utilized.
5.10 The assistant secretaries in the order of their seniority,
unless otherwise determined by the board of directors, shall, in the
absence or disability of the secretary, perform the duties and exercise
the powers of the secretary. They shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe or as the president may from time to time delegate.
THE TREASURER AND ASSISTANT TREASURERS
5.11 The treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts and records of
receipts, disbursements and other transactions in books belonging to the
corporation, and shall deposit all moneys and other valuable effects in
the name and to the credit of the corporation in such depositories as may
be designated by the board of directors.
5.12 The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render the president and the board of directors,
at its regular meetings, or when the president or board of directors so
requires, an account of all his transactions as treasurer and of the
financial condition of the corporation.
5.13 If required by the board of directors, the treasurer shall give
the corporation a bond of such type, character and amount as the board of
directors may require.
5.14 The assistant treasurers in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the treasurer, perform the duties and exercise the powers
of the treasurer. They shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe or
the president may from time to time delegate.
<PAGE>
ARTICLE VI
CERTIFICATES AND SHAREHOLDERS
6.1 The consideration paid for the issuance of shares shall consist
of money paid, labor done, or property actually received. Shares may not
be issued until the full amount of the consideration, fixed as provided
by law, has been paid. When such consideration shall have been paid to
the corporation or to a corporation of which all the outstanding shares
of each class are owned by the corporation, the shares shall be deemed
to have been issued and the subscriber or shareholders entitled to
receive such issue shall be a shareholder with respect to such shares,
and the shares shall be considered fully paid and non-assessable.
CERTIFICATES REPRESENTING SHARES
6.2 The shares of the corporation shall be represented by certificates
signed by the president or a vice president and the secretary or an
assistant secretary of the corporation, and may be sealed with the seal
of the corporation or a facsimile thereof.
6.3 The signatures of the president or vice president and the
secretary or assistant secretary upon a certificate may be facsimiles
if the certificate is countersigned by a transfer agent, or registered
by a registrar, other than the corporation itself or an employee of the
corporation. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date
of its issue.
LOST CERTIFICATES
6.4 The board of directors may direct a new certificate to be issued
in place of any certificate theretofore issued by the corporation alleged
to have been lost or destroyed. When authorizing such issue of a new
certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient and may require such indemnities as it
deems adequate to protect the corporation from any claim that may be made
against it with respect to any such certificate alleged to have been lost
or destroyed.
6.5 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled
thereto and the old certificate cancelled and the transaction recorded
upon the books of the corporation.
<PAGE>
CLOSING OF TRANSFER BOOKS
6.6 For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders, or any adjournment thereof,
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock
transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock
transfer books, the board of directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any
case to be not more than fifty days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed
or the date on which the resolution of the board of directors declaring
such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been
made as provided in this section, such determination shall be applied to
any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of
closing has expired.
REGISTERED SHAREHOLDERS
6.7 The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by laws
of Texas.
LIST OF SHAREHOLDERS
6.8 The officer or agent having charge of the transfer books for
shares shall make, at least ten days before each meeting of shareholders,
a complete list of the shareholders entitled to vote at such meeting,
arranged in alphabetical order, with the address of each and the number
of shares held by each, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered office of the
corporation and shall be subject to inspection by any shareholder at any
time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to
the inspection of any shareholder during the whole time of the meeting.
The original share ledger or transfer book, or a duplicate thereof, shall
be prima facie evidence as to who are the shareholders entitled to
examine such list or share ledger or transfer book or to vote at any
meeting of the shareholders.
<PAGE>
TRANSFER AGENTS AND REGISTRARS
6.9 The board of directors may appoint one or more transfer agents
and/or one or more registrars, and may require all certificates of stock
to bear the signatures of any of them.
RESTRICTIONS ON TRANSFER
6.10 Subject to the provisions of the Texas Business Corporation Act, the
corporation may enter into stock purchase agreements or other agreements
containing restrictions on transfer of shares with any shareholder or
shareholders as from time to time may seem appropriate; provided,
however, that before a restriction on transfer of shares may be imposed
the requirements of Articles 2.21 and 2.22 of the Texas Business
Corporation Act must be met.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
7.1 Subject to the provisions of the articles of incorporation relating
thereto, if any, dividends may be declared by the board of directors, in
its discretion, at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in the corporation's own
shares, subject to any provisions of the articles of incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper
as a reserve fund for meeting contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the corporation, or for
such other purpose as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
CHECKS
7.3 All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
7.4 The fiscal year of the corporation shall be fixed by resolution of
the board of directors.
SEAL
7.5 The corporation may have a corporate seal, to be in such form as
prescribed by the board of directors. The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner
reproduced, provided, that affixing the seal to documents executed on
behalf of the corporation shall not be required.
<PAGE>
BOOKS AND RECORDS
7.6 The corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders and
board of directors, and shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a
record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
ARTICLE VIII
AMENDMENTS
The Bylaws may be altered, amended, or repealed or new Bylaws may be
adopted by a majority of the whole board of directors at any regular or
special meeting. Any future alteration, amendment, or repeal of these
Bylaws, which serves to reduce or eliminate any benefit afforded by these
Bylaws to any director, officer, employee or agent of the Corporation
shall operate prospectively only and shall not affect any such benefit
that may have accrued to such person before such amendment is
implemented.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
9.1 Any person named or threatened to be named a defendant or respondent
in any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or of any other enterprise which he served as
director, officer, employee, agent or similar functionary at the request
of the corporation while such person was a director, officer, employee or
agent of the corporation, shall be indemnified by the corporation only if
it is determined that such person: (a) conducted himself in good faith;
(b) reasonably believed that his conduct was in the corporation's best
interest in the case of conduct in his official capacity; or in all other
cases, that his conduct was at least not opposed to the corporation's
best interest; and (c) had no reasonable cause to believe his conduct was
unlawful in the case of any criminal proceeding. The termination of a
proceeding by judgment, order, settlement, conviction or plea of nolo
contendere or its equivalent is not of itself determinative that the
person did not meet the conduct requirements set forth above.
9.2 A director, officer, employee or agent of the corporation may not be
indemnified under Section 9.1 for obligations resulting from a
proceeding; (a) in which such person is found liable on the basis that
personal benefit was improperly received by him, whether or not the
benefit resulted from an action taken in such person's official capacity;
or (b) in which such person is found to be liable to the corporation.
<PAGE>
9.3 The determination that indemnification under Section 9.1 is
permissible shall be made; (a) by a majority vote of a quorum consisting
of directors who at the time of the vote are not named defendants or
respondents in the proceeding; (b) if such a quorum cannot be obtained,
by a majority vote of a committee of the Board of Directors, designated
to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not named
defendants or respondents in the proceeding; (c) by special legal counsel
selected by the Board of Directors or a committee of the Board of
Directors by vote as set forth in (a) or (b) above, of if such quorum
cannot be obtained and such a committee cannot be established, by a
majority vote of all directors; or (d) by the shareholders in a vote that
excludes the shares held by directors who are named defendants or
respondents in the proceeding.
9.4 The corporation shall indemnify a director, officer, employee or
agent of the corporation under Section 9.1 against judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable
expenses actually incurred by such person in connection with the
proceeding; provided that if the proceeding was brought by or in behalf
of the corporation, the indemnification shall be limited to reasonable
expenses actually incurred by such person in connection with the
proceeding. Determination as to reasonableness of expenses shall be made
in the same manner as to the determination that indemnification is
permissible; provided that if the determination that indemnification is
permissible is made by special legal counsel, determination as to
reasonableness of expenses shall be made in the manner specified by (c)
of Section 9.3 for the selection of special legal counsel.
9.5 The corporation shall indemnify any director, officer, employee or
agent of the Corporation against reasonable expenses incurred by him in
connection with a proceeding in which he is a party because he is a
director, officer, employee or agent of the corporation if he has been
wholly successful, on the merits or otherwise, in the defense of the
proceeding. If, in a suit for such indemnification, a court of competent
jurisdiction determines that such director, officer, employee or agent of
the corporation is entitled to indemnification under this Section 9.5,
the corporation shall indemnify such person as the court shall order and
also shall reimburse such person for expenses incurred in securing such
indemnification as the court shall award.
9.6 If a court of competent jurisdiction determines that a director,
officer, employee or agent of the corporation is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not he has met the conduct requirements set forth in Section
9.1 or has been adjudged liable in the circumstances described in Section
9.2, the corporation shall indemnify such person as such court determines
is proper and equitable; provided that such court shall have limited such
indemnification to reasonable expenses if the proceeding is brought by or
in behalf of the corporation or if such person is found liable on the
basis that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in such person's official
capacity.
<PAGE>
9.7 Reasonable expenses incurred in connection with a proceeding by a
director, officer, employee or agent of the corporation who was, is or is
threatened to be made a named defendant or respondent in a proceeding
shall be promptly paid or reimbursed by the corporation after the
corporation has received a written affirmation by such person of such
person's good faith belief that such person has met the conduct
requirements set forth in Section 9.1 and a written undertaking by or on
behalf of such person to repay the amount paid or reimbursed if it is
ultimately determined that such person has not met those requirements.
Such undertaking shall be an unlimited general obligation of such
director, officer, employee or agent, but such undertaking need not be
secured and may be accepted by the corporation without reference to such
person's ability to make repayment.
9.8 The corporation shall pay or reimburse expenses incurred by a
director, officer, employee or agent of the corporation in connection
with his appearance as a witness or other participation in a proceeding
at a time when he is not a named defendant or respondent in the
proceeding.
9.9 The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation
as a director, officer, employee, agent or similar functionary of any
other enterprise, against any liability asserted against him and incurred
by him in such capacity or arising out of his status as such a person,
whether or not the corporation would have the power to indemnify him
against that liability under this Article IX.
9.10 Any indemnification of or advance of expenses to a director,
officer, employee or agent of the corporation in accordance with this
Article IX shall be reported in writing to the shareholders of the
corporation with or before the notice or waiver of notice of the next
shareholders' meeting or with or before the next submission to
shareholders of a unanimous consent to action without a meeting pursuant
to Section 2.9 and, in any case, within the twelve-month period
immediately following the date of the indemnification or advance.
ARTICLE X
INTEREST OF DIRECTORS, OFFICERS AND SHAREHOLDERS
The corporation may enter into contracts or transact business with
one or more of its directors, officers or shareholders, or with any
corporation, firm or association in which any of its directors or
officers are shareholders, directors, officers or employees, or are
otherwise interested; and no such contract or other transaction shall be
void or voidable or otherwise affected by reason of such ownership or
directorship or office in such corporation or such interest in such other
firm, corporation or association, notwithstanding that the vote of such
director or directors shall have been necessary to authorize, approve,
ratify or otherwise obligate the corporation upon such contract or
transaction; provided, however, that the fact of such interest shall be
fully disclosed or otherwise known to the board of directors at a meeting
of the board of directors which acts upon or in reference to such
contract or transaction.
<PAGE>
AMENDMENT TO ARTICLE X OF THE BY-LAWS
The area of business interest of the Company is all aspects of the
entertainment business excluding personal appearances, acting, recording
or similar opportunities by the officers or directors, including Donald
C. Osmond, in their capacity as a performing artist or entertainer and
excluding film, video and live event production services offered by
Nightstar, Inc. for hire. All business opportunities within such area of
business interest which come to the attention of any officer or employee
of the Company must be disclosed promptly to the Company and made
available to the Company. All business opportunities within such area of
business interest which come to the attention of any director of the
Company, who is not also a paid officer or employee of the Company, as a
result of their position as a director of the Company, shall be disclosed
promptly to the Company and made available to the Company. The Board of
Directors may reject any business opportunity presented to the Company,
and the officer or director of the Company who made such business
opportunity available to the Company may thereafter avail himself
(herself) of such opportunity. Further, any officer or director of the
Company who has engaged in a specific business project within the
Company's area of business interest prior to the date such person first
becomes an officer and/or director of the Company, shall be free to
continue to engage in such specific business project if such business
project is disclosed to the Company before such person joins the Company.
The person presenting a business opportunity to the Company for
acceptance or rejection shall, if he is a director of the Company, be
prohibited from voting as a director of the Company on such acceptance or
rejection. The provisions of this resolution shall also be applicable to
"Affiliates" of officers and directors of the Company to the same extent
as such provisions are applicable to such officer and/or director. For
purposes of this resolution, the term "Person" shall mean an individual,
corporation, association, partnership, or other entity. Notwithstanding
anything to the contrary provided in the Company's Articles of
Incorporation or By-Laws as now or hereinafter in effect, this portion of
Article X of the By-Laws may not be deleted, changed or amended in the
future without the unanimous approval of those persons who are directors
of the Company at the time of such proposed deletion, amendment or change
and the vote or concurrence of the holders of shares of the Company
having a majority of the votes entitled to be cast thereon. All Articles
of the By-Laws except Article X may be amended, altered or changed by the
Board of Directors without shareholder approval.
<PAGE>
EXTENSION AGREEMENT FOR NOTE AND SECURITY AGREEMENT
THIS AGREEMENT is made and entered into as of this date, by and
between uniView Technologies Corporation, formerly known as Curtis Mathes
Holding Corporation, hereinafter referred to as the "Debtor" and Geneva
Reinsurance Company, Ltd., hereinafter referred to as the "Secured
Party."
A. After the conversion of $1,000,000 of the Debt into Debtor's
Common Stock, Debtor is indebted to Secured Party in the amount of
$741,289.81, including principal and accrued interest, herein referred to
as the "Debt", represented by a note signed by Debtor on December 23,
1997, with the principal balance being due and payable on or before
December 31, 1998.
B. Secured Party is the beneficiary of a General Security
Agreement, hereinafter referred to as the "Security Agreement", securing
the Debt. The Security Agreement was executed by Debtor on December 23,
1997, and a UCC lien was recorded in the office of the Texas Secretary of
State, under UCC file number 98-236369. The UCC represents a lien on the
property described therein, which is:
(a) all accounts, contract rights and general intangibles relating
to accounts, receivables and claims whether now or hereafter
arising; (b) all inventory, wherever located and whether now or
hereafter existing, (including, but not limited to, raw materials
and work in process, finished goods and materials used or consumed
in the manufacture or production thereof, goods in which the Debtor
has an interest in mass or a joint or other interest or rights of
any kind, and goods which are returned to or repossessed by the
Debtor) and all accessions thereto and products thereof and
documents therefor; (c) all equipment, wherever located and whether
now or hereafter existing, and all parts thereof, accessions
thereto, and replacements therefor and all documents and general
intangibles covering or relating thereto; (d) all Trademarks, logos,
and the goodwill associated therewith, all registrations and
recordings thereof, and all applications in connection therewith;
(e) all Trademark Licenses providing for the grant of any right to
use any Trademark held by Debtor; (f) all books and records
pertaining to the Collateral; and (g) all proceeds of the foregoing.
C. Debtor desires an extension of time for the payment of the Debt
and Secured Party is willing to grant forbearance to Debtor on the terms
and conditions stated in this Agreement.
IT IS THEREFORE AGREED:
1. Principal and accrued interest on this note shall be convertible
into par value $.10 Common Stock of the Debtor at a fixed conversion
price of $1.00 per share, which represents the average closing sale price
of the Common Stock, as reported by NASDAQ, for the five (5) trading days
immediately preceding the date of this agreement.
2. All of the Principal and interest of this note shall be due and
payable on or before March 31, 2002. Debtor shall comply with all the
terms and conditions of the Promissory Note except those specifically
altered by this Agreement.
<PAGE>
3. Debtor shall comply with all the terms and conditions of the
Security Agreement except those specifically altered by this Agreement.
The UCC lien described in Paragraph B on the property described in
Paragraph B shall continue until the Debt is paid in full.
DATED as of March 16, 1999.
DEBTOR: uniView Technologies Corporation SECURED PARTY:
Geneva Reinsurance
Company, Ltd.
By: /s/ Pat Custer By: /s/ Lewis D. Rowe
Patrick A. Custer, President Lewis D. Rowe, Director
<PAGE>
DATABASE SERVICE AGREEMENT
TVData Technologies, L.P., a Georgia Limited Partnership, with an
office at 333 Glen Street, 6th Floor, Glens Falls, New York 12801
("TVDT"), and uniView Technologies Corp., a Texas corporation ("uniView")
with an office at 10911 Petal Street, Dallas, Texas 75238, agree as
follows:
WHEREAS, TVDT compiles, updates and owns copyrights to pre-broadcast
United States ("US") television listings information and information
regarding US cable television systems and their associated channel
carriage lineups ("Databases") as hereinafter defined; and
WHEREAS, uniView is in the business of employing uniView proprietary
technology (hereinafter "Technology") to provide services including an
electronic television program listing information to products which
include the Technology (hereinafter "Products"), and desires to use the
Databases therewith:
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. In addition to terms defined elsewhere in this
Agreement, the following terms shall have the following meanings when
used in this Agreement:
(1) "Listings Data" means the chronological list of programs to be
broadcast by a Program Source or Other Program Source (as hereinafter
defined), which is produced by TVDT and specifically consisting of those
items set forth on Exhibit A hereto, which may be altered from time to
time by mutual consent of the parties.
(2) "Program Source" means (i) an established and active full power
analog television broadcast station which is authorized to operate by the
FCC, (ii) any satellite broadcast service which is available to be
received by at least two million US homes, or (iii) any cable-originated
channel (such as a local or customized pay-per-view channel or community
cable channel) or local broadcast or low power station which is available
to be received by at least two million US homes.
(3) "Other Program Source" means any broadcast station, satellite
broadcast service, pay-per-view or cable-originated channel not included
in the definition of a Program Source and available in the US.
(4) "Program Source Schedule" means the Listings Data with respect
to any Program Source or Other Program Source.
(5) "Cable System" means a business entity operating within the US
and franchised by a local community to provide CATV service to the area via
cable, but which shall not include SMATV, MMDS, DBS, apartment complex or
wireless cable systems, as all such terms are defined in regulations
issued by the FCC.
(6) "Carriage Data" means a list, and daily updates thereto, which
includes the identity of every known Cable System, the Zip Codes serviced
thereby, and all of the cable television channel designations and the
associated Program Source (the "Map") used by each (and specifically
consisting of those items set forth on Exhibit B hereto) to be provided
by TVDT pursuant to this Agreement, which may be altered from time to
time by mutual consent of the parties.
<PAGE>
(7) "Databases" means the Carriage Data and the Listings Data.
(8) "Software" shall mean the software which is designed,
manufactured and licensed by uniView which is used by Users and is required in
order to receive, display or use on a television screen or television monitor
uniView's Service (as hereinafter defined).
(9) "Service" shall mean the electronic feed, graphical and/or video
services supplied by uniView to the Users, which service shall include,
among other things, portions of the Databases; provided, however, (i)
that with respect to the Databases, uniView shall limit the content of
the Databases made available to any User and within the Service to the
Databases with respect to those Program Sources or Other Program Sources
able to be received by such User based on the broadcast, satellite or
cable services available within the geographic market area in which such
User resides or is located, (ii) that the Software shall in no way
facilitate or invoke the electronic capture, storage or output of any
portion or subset of the Databases, except as to facilitate the printing
by a User in the following ways:
1. Print single displayed screen of information
2. Print one (1) full day (or a subset of the current
day) of the current day programming information for
the system the user has (local broadcast, satellite,
or cable)
3. Print full description of the programming information
requested
4. Print search results that spans multiple days of data
(up to 7 days)
5. Print listings of programs scheduled for recording.
(10) "User" shall mean an individual consumer which is licensed to
receive the Service including the TVDT Databases, or any part thereof,
for non-commercial purposes.
2. Services.
(1) Subject to the provisions of this Agreement, TVDT shall provide
to uniView the Databases to facilitate the localized storage of an
electronic programming guide within the Product. The Databases shall be
used solely for the purposes of creating a specific set of electronically
delivered program listings for each User of the Product. The Databases
shall not be made available to third parties for any other use. TVDT
shall use commercially reasonable efforts to contact every known Program
Source and attempt to update the Listings Data for such Program Sources
no less than twice each week during the term of this Agreement. TVDT
shall use commercially reasonable efforts to contact every known Cable
System no less frequently than once per month and attempt to determine if
any changes have occurred to their Map or Zip Code coverage. The
Databases shall be updated no less frequently than daily with all such
changes which are obtained by TVDT, and these updates shall be provided
or made available to uniView daily.
(2) TVDT's obligation to provide Program Source Schedules shall apply
only to Program Sources contacted in the ordinary course of TVDT's
business. Other Program Sources will be provided to uniView upon request
at TVDT's established rates as they may change from time to time.
<PAGE>
3. Delivery. The Databases shall be delivered to uniView on uniView's
established TCP/IP file transfer service (the "FTS"), or other service
designated by uniView that is reasonably compatible with TVDT's then
existing technology. uniView will retrieve the Databases from the FTS on
a daily, or as needed basis. Prior to any change in the FTS which would
require programming and operational procedure changes by either party to
facilitate delivery of the Databases, the party making such change shall
give the other party thirty (30) days written notice of such change. In
the event that programs or delays should occur with any such delivery,
TVDT agrees to provide other reasonable delivery methods until such
problems or delays can be reasonably cured. All costs of delivery of the
Databases, including the costs of the phone calls, shall be borne by
uniView. TVDT shall use commercially reasonable efforts to maximize the
availability/uptime of its computer system and shall perform data backups
based on a reasonably prudent schedule and store such backups in a
secured location.
4. Price and Payment.
(1) In addition to the Database Fee set forth in Section 4(b), upon
execution and delivery of this Agreement, uniView shall become obligated
to pay TVDT an annual fee of Seventy Thousand Dollars ($70,000), payable
in monthly installments of Five Thousand Eight Hundred Thirty Three
Dollars and Thirty Three Cents ($5833.33) (the "Monthly Fee"). TVDT
shall invoice uniView for the Monthly Fee on or about the first day of
each month and payment shall be due within thirty (30) days of the date
of the invoice.
(2) Upon the effective date of this Agreement, for the Databases
provided pursuant hereto, uniView shall pay to TVDT a fee equal to $.50
multiplied by the number of Users provided access to any portion of the
Databases during a given month, plus any government imposed sales or use
taxes payable by TVDT which are levied on the sale or delivery of the
Databases to uniView (the "Database Fee"). TVDT shall invoice uniView for
the Database Fee on or about the first day of each month, with such such
Database Fee being calculated based upon the number of Users at the end
of the prior month. Payment is due within thirty (30) days of the date
of invoice. No later than fifteen (15) days after the end of each month,
uniView shall submit a written report to TVDT specifying the actual
number of Users during the prior month, and (i) in the event of an
underbilling in connection with the invoice for the prior month, uniView
shall submit payment to TVDT for such underbilled amount with such
report, and (ii) in the event of an overbilling in connection with the
invoice for the prior month, TVDT shall issue a credit to uniView for
such overbilled amount against future amounts due hereunder. TVDT shall
have the right to audit uniView's records pertaining to number of Users
from time to time on ten (10) days' written notice.
(3) The parties acknowledge the payment of $750,000.00 and the
agreement to issue 250,000 shares of uniView Technologies Corporation (the
"Shares") as a condition precedent for the provision of Database Services
by TVData.
5. Term.
(1) The initial term of this Agreement shall begin on August 1, 1999
and, subject to the termination rights set forth below, continue for a
period of two (2) years. Notwithstanding the foregoing, TVDT shall only
be obligated to begin providing the services under Section 2 hereof as
<PAGE>
soon as is reasonably practicable, but in no event later than August 10,
1999.
(2) TVDT shall have the right to terminate this Agreement, effective
immediately, upon (i) any default by uniView hereunder, including without
limitation the failure of uniView to pay any amounts owed to TVDT as
specified in this Agreement, (ii) any default of uniView under that
certain Registration Rights Agreement by and between TVDT and uniView
dated July 25, 1999, or (iii) any default by uniView under that certain
Mutual Release and Settlement Agreement dated July 25, 1999. uniView
shall have the right to terminate this Agreement at any time by providing
TVDT with 5 days advance written notice hereunder. Notwithstanding the
foregoing, all obligations of uniView to pay TVDT existing at the time of
any termination, and the provisions of Sections 6, 7, and 8, shall
survive any termination of this Agreement.
6. Use and Protection of Proprietary Rights.
(1) uniView shall use the Databases solely for providing Services to
Users of the Products. uniView shall only provide the Service in a
manner such that the total number of Users can be quantified to
facilitate calculating the Database Fee in Section 4(b). Otherwise,
uniView shall not make use of the Databases, or make the Databases
available to any third party, in any medium, by electronic or other
means, for any purpose, or authorize any third party to reproduce or
otherwise use any part of the Databases. uniView shall take reasonable
steps to ensure that its employees and agents do not violate the
restrictions of this Section 6.
(2) Except for uniView's right to use the Databases as set forth in
Section 6, TVDT retains title to the Databases, and all proprietary
rights, including copyrights, trademarks, service marks, patent and trade
secrets relating thereto. uniView acknowledges that the Databases are
proprietary to TVDT and that this Agreement does not grant uniView the
right to use, store, record, copy, extract or convert the Databases after
the termination or expiration of this Agreement. Immediately upon
termination or expiration of this Agreement, uniView agrees to promptly
purge the Databases obtained from TVDT pursuant to this Agreement from
its computer or hard copy files, and certify in a written notice signed
by an officer of uniView that the purge has been completed.
7. Performance.
(1) TVDT shall not be liable to uniView or any other person for any
damage or expense resulting from the use of the Databases, whether or not
caused by TVDT, and shall not be responsible for interruptions, delays or
non-performance of the Agreement due to any work stoppage or other
occurrence beyond the control of TVDT. uniView acknowledges that: (i)
the Databases are produced by TVDT in good faith from information
compiled and supplied by unrelated third parties, and the Databases are
therefore subject to various inaccuracies and, (ii) that TVDT has no
obligation to verify the accuracy of such information beyond accurate
reporting of the information received from such third parties.
Therefore, TVDT shall not be liable for any loss, damage or expense of
uniView or any other person arising out of this Agreement, whether due to
default by TVDT hereunder or otherwise; provided, however, that if such
default by TVDT as to the Databases or any part thereof is the sole and
exclusive cause of actual monetary loss to uniView, uniView shall, as its
sole remedy, be entitled to a credit or refund for an amount of the loss
<PAGE>
not in excess of that paid by uniView hereunder for the information to
which such default applies, but, in no event, under no set of
circumstances, shall uniView be entitled to a credit or refund of the
$750,000.00 or the Shares, or the value thereof; the parties specifically
agreeing that TVData shall not be required to return to uniView the
$750,000.00 or the Shares, or the value thereof, under any legal theory
including without limitation fraud, commercial frustration, commercial
impracticability, mistake, unconscionability, illegality, bad faith or
any other legal or equitable theory, now or hereafter existing, known or
unknown to man. TVDT OTHERWISE MAKES NO WARRANTIES, EXPRESS OR IMPLIED
(WHETHER WRITTEN OR ORAL), AND SPECIFICALLY, BUT WITHOUT LIMITATION,
MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE IN CONNECTION WITH THE DATABASES.
8. Indemnification.
(1) uniView shall indemnify and hold TVDT, its successors and
assigns, and its partners, directors, officers, agents and employees, and each
of them, harmless from and against any and all claims, allegations, demands,
causes of action, damages, losses, liabilities, costs or expenses of
every nature and kind, including reasonable attorneys' fees, arising out
of or in connection with uniView's use of the Databases or uniView's non-
performance of this Agreement.
(2) TVDT shall indemnify and hold uniView, its successors and
assigns, and its directors, officers, agents and employees, and each of them,
harmless from and against any and all claims, allegations, demands,
causes of action, damages, losses, liabilities, costs or expenses of
every nature and kind, including reasonable attorneys' fees, arising
from, or in connection with, TVDT's failure to own, or have the right to
deliver or supply to others, the Databases as supplied to uniView by TVDT
pursuant hereto.
(3) A party seeking indemnity (the "Indemnitee") shall give the other
party (the "Indemnitor") prompt written notice of any claim specifying
the nature of the claim asserted. The Indemnitor shall at its own
expense, and with counsel reasonably satisfactory to the Indemnitee,
defend the Indemnitee against any such claim and the Indemnitor shall
have no right to dispose of any such claim without Indemnitee's written
consent, which will not be unreasonably withheld. If there are legal
defenses available to the Indemnitee which Indemnitee believes are not
satisfactorily raised by the Indemnitor, the Indemnitee may, after
notifying the Indemnitor, undertake and conduct the defense or
settlement, or both, of such claim, demand or cause of action, select
separate counsel to assert such legal defenses or otherwise participate
in the defense of such action.
9. Assignment. Neither party shall have the right to assign this
Agreement without the prior written consent of the other party, (which
consent shall not be unreasonably withheld), except to any entity that is
(i) a parent or controlled subsidiary of each party, (ii) under common
control of the corporate parent of such party, or (iii) a successor in
interest to such party by reason of merger or purchase of substantially
all of its assets.
10. Miscellaneous.
(1) This Agreement contains the entire understanding between the
parties relating to Database Services and supersedes any prior understandings
<PAGE>
or agreements between them, including the Database Service Agreement between
TVData and Curtis Mathes Marketing Corporation and any Guaranty thereof,
whether written or oral, respecting the within subject matter, except for
a Confidentiality and Nondisclosure Agreement signed by the parties on
December 3, 1996, which will survive this Agreement. Time is of the
essence as to the payment obligations set forth in Section 4. The
provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
(2) All notices required or permitted under this Agreement shall be
provided by personal delivery, or telefax with verbal confirmation of
receipt, or mailed, postage prepaid, by certified or registered mail to
the appropriate addresses listed below, or to such other address of which
the other party has been duly notified:
If to TVDT: Kenneth H. Carter
Chief Financial Officer
TVData Technologies, L.P.
333 Glen Street, 6th Floor
Glens Falls, New York 12801
Fax: (518) 792-4671
With a copy to: Long, Aldridge & Norman, LLP
303 Peachtree Street NE, Suite 5300
Atlanta, Georgia 30308
Attn: Johnathan Short, Esq.
If to uniView: Patrick Custer
uniView Technologies Corp.
10911 Petal Street
Dallas, Texas 75238
(3) This Agreement may not be amended, nor shall any waiver,
modification, consent or discharge be effected, except by instrument in
writing executed by or on behalf of the party against whom enforcement is
sought.
(4) Any and all disputes including early termination or controversies
whether of law or fact and of any nature whatsoever arising from or
respecting this Agreement shall be decide by arbitration conducted by the
American Arbitration Association in accordance with the rules and
regulations of that Association. The arbitrators shall be selected as
follow: In the event TVDT and uniView agree on one arbitrator within
thirty (30) days, the arbitration shall be conducted by such arbitrator.
In the event that TVDT and uniView do not agree within thirty (30) days,
TVDT and uniView shall each select one independent, qualified arbitrator
and the two arbitrators so selected shall select the third arbitrator
within thirty (30) days. Either party has the right to object to and
exclude for cause any individual arbitrator who shall be employed by or
affiliated with a competing organization.
Arbitration shall take place exclusively in Atlanta, Georgia or
any other location mutually agreeable to the parties. At the request of
either party, arbitration proceedings will be conducted in the utmost
secrecy; in such case all documents, testimony and records shall be
received, heard and maintained by the arbitrators in secrecy under seal,
available for the inspection only of TVDT or uniView and their respective
<PAGE>
attorneys and their respective experts who shall agree in advance and in
writing to receive all such information confidentiality and to maintain
such information in secrecy until such information shall become generally
known. The arbitrator(s), who shall act by a majority vote, shall be
able to decree any and all relief of an equitable nature, including but
not limited to such relief as a temporary restraining order, a temporary
and/or a permanent injunction and specific performance, and shall also be
able to award damages, with or without an accounting and costs. The
decree or judgment or an award rendered by the arbitrator(s) shall be
binding and non-appealable and may be entered in any court having
jurisdiction thereof. Reasonable notice of the time and place of
arbitration shall be given to all persons.
(5) This Agreement may be executed in two or more counterparts, which
when taken together shall constitute one and the same agreement. A fax
signature shall be effective and shall be followed as soon as practicable
by a hard copy ink signature, but in no event shall that hard copy ink
signature be delivered later than 5:00 p.m., Thursday, July 29, 1999.
Effective as of the 1st day of August, 1999.
uniView Technologies Corp. TVData Technologies, L.P.
By: /s/ Pat Custer By: /s/ Kenneth H. Carter
Print: Patrick A. Custer Print: Kenneth H. Carter
Title: President Title: Chief Financial Officer
Dated: July 26, 1999 Dated: July 26, 1998
<PAGE>
EXHIBIT 21
UNIVIEW TECHNOLOGIES CORPORATION
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
uniView Technologies Advanced Systems Group, Inc. Texas
uniView Technologies Products Group, Inc. Texas
Video Management, Inc. Texas
Network America, Inc. Oklahoma
Corporate Network Solutions, L.C. Texas
Curtis Mathes Corporation Delaware
uniView Xpressway Corporation Texas
Warranty Repair Corporation Texas
uniView Network America Corp. Texas
FFL Corporation Texas
Systematic Electronics Corp. Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 4,412,664
<SECURITIES> 0
<RECEIVABLES> 1,117,308
<ALLOWANCES> 0
<INVENTORY> 436,583
<CURRENT-ASSETS> 5,994,838
<PP&E> 5,056,169
<DEPRECIATION> 3,745,962
<TOTAL-ASSETS> 14,080,768
<CURRENT-LIABILITIES> 3,053,053
<BONDS> 0
0
140,863
<COMMON> 1,501,315
<OTHER-SE> 6,694,800
<TOTAL-LIABILITY-AND-EQUITY> 14,080,768
<SALES> 11,486,058
<TOTAL-REVENUES> 11,486,058
<CGS> 8,677,047
<TOTAL-COSTS> 19,399,389
<OTHER-EXPENSES> (510,106)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471,545
<INCOME-PRETAX> (6,297,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,297,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,297,353)
<EPS-BASIC> (.52)
<EPS-DILUTED> (.52)
</TABLE>
